Category Archives: Marketing

Facebook Product Changes Aimed at Maximizing Revenue

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Brands love being on the Facebook platform. With Facebook reaching 3 out of every 4 Internet users in the US, it’s been a great way to reach customers where they’re spending their days. And the best part? It’s free. That combination has been a powerful driver, bringing brands and marketers on to the platform, with companies forsaking their own websites, driving traffic to Facebook to gain new fans. All with the hope that this new opt-in-lite “fan” asset will be a longterm winner, creating new customers and revenues. But two recent seemingly-unrelated changes on Facebook may signify the party is almost over, and that Facebook will be coming for it’s cut of the pie for the privilege of connecting with customers on Facebook.

The first change rolled out week’s ago to much fanfare and debate. The new Sponsored Stories. The Sponsored Stories product lets brands promote organic mentions, reviews and other shared information by users of Facebook, gaining guaranteed visibility for the item that may otherwise have gone unnoticed in the river of the hidden-by-default “Most Recent” news items. Most marketers loved this idea, because trying to get your items into their much more visible “Top News” feed is an art and science that has yet to be figured out completely.

With Sponsored Stories, Facebook gave brands a way to pay to get that extra visibility that everyone wants, in a consistent and guaranteed way. It was pitched as a boon to advertisers who wanted to stand out among the noise, and already, brands like Levi’s have lined up to take advantage. It was a smart move for Facebook in terms of wooing advertisers, and an innovative way to drive revenue.

But, then, just a few days ago, Facebook changed what users see in their news feeds. Switching the default view of the feed to “Show posts from: friends and Pages you interact with the most”, hiding tons of content that could’ve previously been visible to the user under the old settings. Of course, there are some obscure controls at the bottom of the News Feed that let you customize and restore the “Show posts from: All of your friends and pages”, but really, how many users even know they can change the global settings on their news feed, let alone know that something’s been changed for them that’s materially altering their experience on the site?

And this is punch #2 of the 1-2 product punch for Facebook. Because with a new, more restrictive filter on the News Feed, plus a new vehicle for driving revenue with Sponsored Stories, Facebook is making it harder and harder for brands to get organic mentions in front of casual fans – the exact people they want to reach and engage with on Facebook. It’s a shrewd and calculating move. Cut off organic access quietly, shortly after trumpeting a new, innovative way to get more visibility. And I predict that as brands see less engagement on their organic posts, more and more are going to be considering the Sponsored Stories as the de facto way to ensure key messages hit their target audience on the site. Driving tons of new revenue to Facebook.

But how will this sit with the advertisers who have been lured into a false sense of security where now the only way to leverage Facebook is to pay whatever the going rate is? Will brands feel taken advantage of now that their organic updates are less effective and the only way to the customer is through the Facebook sales department? Or will brands just merrily pony up cash to reach more people on Facebook, counting their number of fans like chits and assuring themselves they’re building a permission-marketing asset?

What do you think? Did Facebook intentionally roll these changes out together to drive more revenue? Or is one just a case of improving user experience by reducing clutter and the other a new ad model? That’s the benevolent angle I guess – but not the one I’m betting on.

It remains to be seen; but either way, the trap has been quietly set, and Facebook is counting on reaping a ton of cash from access-starved marketers who, now addicted to connecting with their customers for free on Facebook, will pay the going rate to keep feeling the love.

Groupon’s Biggest Threats Won’t Come from the Web

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Now that Groupon has closed “Like, a Billion Dollars” it’s time for the company to get down to business. Mathew Ingram notes on GigaOm, that “now comes the hard part” for the company. And he’s right, now that you have the money it’s time to go out an execute and build a business that can provide a return on that level of investment. They’ve got competition and more and more wannabe’s are popping up with deal offers left and right. But the threat’s to be worried about won’t come from the Web companies. The threat’s to be wary of come from the yellow page directories themselves.

Ingram writes:

On top of Google presenting a competitive threat, there is also Facebook, which has experimented with Groupon-style discounts via Facebook Places, and could quite easily leverage its 600-million-user reach to compete with the company if it wanted to. And then there are competitors such as LivingSocial, the second-largest group-buying player, which recently got a $175-million investment from Amazon — another company that has the deep pockets and the reach to compete with Groupon — and Tippr, which has a white-label platform that allows merchants and website publishers to run their own Groupon offers, with Tippr handling all of the back-end and support.

And while, sure, Google and Facebook and LivingSocial pose legitimate threats from the online world, the fiercest competition is going to come from companies like AT&T YellowPages and Yellowbook. Because I believe that Groupon is going to go after the SMB business that is the lifeblood to those companies. I wrote earlier, when the $950 million news broke:

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

That’s where the threats and challenges will come from. Groupon is way out ahead of any of its web competitors; but now, to succeed at capturing a big chunk of the SMB market it has to go head-to-head with these massive companies that have sales teams, offices, infrastructure, relationships (oh, and experience) selling to SMBs. They’re the company that local businesses are comfortable investing with. Now, SMBs may not be happy with them, and their businesses may be dying; but they’re a force to be reckoned with and Groupon is going to have it’s work cut out for them to make their business a legitimate contender for the big chunks of SMB dollars currently being spent with YellowPages and the other directories.

So Ingram is right, “now comes the hard part,” but while they’ll need to keep an eye on their web-brethren currently in the rearview; it’s their brand-new competition that will require the most scrutiny. The directories have lost enough already—they’re going to try to leverage their head start to deploy their own deal offerings, and that’s where the battle really lies for Groupon.

Why Groupon Needs $950 Million More

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The blogosphere is abuzz over tech-darling Groupon’s proposed $950 million Series G round. Many people have asked “Why do they need all that money?” And while expansion is the obvious answer, it’s a bit more nuanced than that. Groupon knows that in order to grow at scale in the SMB market you need a big sales organization with feet-on-the-street in the markets you’re hoping to reach. If you look at the successful small business advertising providers—the one’s that own large chunks of the market—they all have large sales forces. And it’s the large sales force that has stood between many a great, local-business-focused business plans and actual success.

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

What Groupon is doing is something that no other tech company has done in recent memory—made a real run at securing a big chunk of the SMB market. Sure, new local-business-focused companies pop-up all the time. But most of them are either niche providers or they partner with the big existing yellow page providers to get access to their sales organization. They become a B2B channel provider leveraging the existing sales force because few can generate or raise the cash necessary to build a sales organization to go out and reach those SMBs directly.

Even mighty Google has taken this approach until now. They’re either unwilling to, or culturally unable to, commit to the SMB market with a massive sales force. Google has targeted savvy SMBs directly with AdWords solicitations; but has also worked aggressively to partner with yellow page companies to sell AdWords as part of existing yellow page bundled services, and often resold as CPM-based impressions (e.g. spend $2,500/month to get a quarter-page ad in the yellow book, a bolded listing with a photo on the site and a bucket of impressions driven by CPMs). And they’ve supported that initiative with direct mail, SEM (of course) and some print advertising as air cover to increase awareness and trial of AdWords through one channel or another.

But it was not until just last week that Google started outbound telesales direct to small business owners. That is a direct response to Groupon spurning their offer, and the realization that if they’re going to get serious about local business they can’t solve it with an algorithm. They need to put people toward the business unit to succeed.

All of this of course sheds quite a bit of light on the Groupon/Google negotiations and why the deal fell apart. I think what Groupon’s board realized (and kudos to them for this insight) is that Google—at its core—is not a sales-driven company. They don’t have the internal buy-in to be a hardcore sales organization and they’ve never committed the resources needed to make small business a booming success. They’ve tried to do it every other way except invest in a massive sales force. And I think Groupon looked at what has worked in reaching SMBs at scale and they realized it’s not arms-length. They realized that SMB advertising is still old school. It’s still knocking and dialing for dollars.

Groupon realized that what they needed is a sales-focused organization, not a technology-focused one. And tying up with Google would be a mistake, because at their core the two companies are fundamentally different in what they know about going to market. Google knows that it’s tech and better and more tech; Groupon knows that it’s how many calls can we make in a day. Groupon’s board knew it wouldn’t thrive under Google.

Additionally, Groupon knew that tying up with a dinosaur of a yellow page business was a bad idea too. The margins are non-existent, advertising dollars are shrinking and moving online, and most observers are waiting for someone to drag those pre-Internet monoliths out behind the wood shed and put a bullet in them. So the only logical step for Groupon, between their options, is to go out and build the sales organization they need that supports the tech organization that they are.

So while everyone oohs and ahhs at $950 million and will continue to talk about bubbles in the tech space; I personally think Groupon has made a very savvy decision to truly be one-of-a-kind, to be the first tech company to go hard after the SMB market—and win.

If Context Isn’t King Yet, It’s Certainly the Heir Apparent

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Google announced at Le Web that they are working on providing search results without users needing to search. Path has limited your social graph to 50 people. Facebook is working hard on its groups, lists and messaging features. Google has tried to buy Groupon and Yelp. Amazon invested $175 million in LivingSocial. Twitter recently launched People Like You. Companies like My6Sense, Curated.by and Storify are popping up everywhere. Jason Kottke and Frank Gruber have two massively trafficked web sites, where they primarily link people to other content. What do they all have in common with one another? They all are an attempt to bring context to an ever-more crowded, noisy and cluttered world.

Context Restores Value to Connections

As the Web gets more connected and crowded, the concept of connections have diminished in inherent value, quickly become commodities. Not sure you agree? Here’s a quick test. Go to LinkedIn, find a co-worker, and ask them about one of their random LinkedIn connections. Chances are they can’t tell you where that person works or remember how they met them. Same thing on Facebook. In the race to connect many users have destroyed the value of their connections by treating them all the same (a limitation of the networks when we first joined.) And when we can’t easily distinguish one connection from another we run into all sorts of issues, from diminished connection with those we really want to stay connected with (I can’t tell you how many of my brother’s status updates I miss, replaced with a steady diet of random weak tie updates) to privacy issues (why can’t I treat my coworkers differently than my former fraternity brothers?)

Context helps to restore the value of these connections by parsing the important ones out of network. All connections are not the same, and should never be treated as such. By helping users provide context to their connections networks like Facebook are hoping to restore the utility of smaller, stronger connections that have been diminished by unwieldy, weak-tie networks that pervade social networking sites.

Facebook has been hard at work with groups. Which allows users to create smaller, intimate groups based on particular connection attributes (family, work, interests,) aka context, that creates more value and brings more utility to the network. I can now connect with and share things with my family members, like photos of my son, easily and privately within the group structure. Something I couldn’t do before very easily. By allowing me to add context to my network I’m able to get more out of it on Facebook.

Path takes a different approach on a similar dynamic. By limiting your connections to 50, they’re ensuring that your network consists of strong connections only. Strong connections create greater intimacy, privacy and add an immediate layer of context that governs how the service is used. My Path is two people right now. Me and my girlfriend. And that’s perfect for me. Because our Path is our photo diary. I don’t need to share it with the world. Path’s forced context creates a quiet, intimate space, much like the Facebook groups does. Path adds another layer of context via its primary functionality. Being almost completely app-based, Path combines the context of location and mobility with privacy and photos. Those layers of context create value for the user. Which leads us to location as an important context.

Context Drives Local Discovery and Commerce

The rush to local buying sites like Groupon, LivingSocial, BuyWithMe and others heralds the arrival of the local context layer being successfully applied to the Web. Yelp was the early pioneer, building social elements onto the local context layer on the Web. Google, Amazon and countless other Web companies are dying to crack the local commerce nut. And now, by applying the local layer to the social web it seems like we’ve reached a tipping point of moving local commerce online. Google gets the importance of connecting social context to local context. That’s why they were happy to shell out $6 billion for Groupon. Amazon gets it too, which is why they invested $175 million in a company with only ~10% of all group buying web traffic.

The local and social context layers drive commerce because it finally connects where we live with what we do and who we know on the Web. And the results are staggering and this connectivity is only beginning. And it’s not just group buying, it’s what every location based service, like Foursquare and Gowalla are trying to solve in their own way too.

These context layers added to online commerce drive confidence and intimacy. It makes the universe of possibilities smaller, more relevant and easier to act on. The context is the key to local web commerce.

Context Drives Content Discovery

Information overload is old news. I’m not even going to rehash the problem; but suffice to say words like “curation” don’t get worn out in information-poor environments. We are swimming in a sea of content. The majority of content, even more so than connections, has become commoditized to a point of uselessness. The advent of publishing technologies has helped content explode, but the tools to deal with this over-abundance are now just starting to get traction. Whether it’s My6Sense which learns what is interesting to you based on your past consumption, or a tool like Storify which lets human editors pull out and arrange Tweets into coherent conversations and storylines, they are trying to serve a massive need for context applied to our content.

Twitter is also trying to up the value of your Tweet stream by pointing to people who are like you, that may up the signal in a stream that is hard to cobble together one connection at a time. I can tell you from experience that it’s hard to craft an inbound Tweet stream of value at any scale. This is a big problem that Twitter needs to solve to help grow the service and make it relevant for less sophisticated users who don’t have the expertise, time or inclination to curate a group of people they follow that gives them the best experience they can get on the network. Twitter is trying to bring context to who you follow and what your Tweet stream looks like in response.

It’s not just machines and services either that are applying context to the content white noise. The ability to curate content, to create and apply an interesting and consistent context filter, is becoming more valuable than the content creation itself. People like Jason Kottke, the folks at Brain Picker and Boing Boing (among others,) are known, and valued, more for their ability to filter, surface and bring context to the endless firehose of content than of their ability to create it. They are the new editors of the Web. While mainstream print and network news have lost relevance these new editors are picking up the reigns of their offline counterparts, and providing much needed guidance to an audience that struggles just to keep up with the torrent of content, good, bad, farmed and malicious.

In a world where we find our own news, we are now in desperate search for our own editors. The software, companies and people who can create context for us that was lost when we ditched network TV for the blogosphere and statusphere are the ones that are creating new value for us on the Web. We’ll see more software like My6Sense, more context-driven M&A like Google and Amazon, and more Jason Kottke’s and Frank Gruber’s as we look for better ways to apply important context to the content that continues to come, like a never-ending avalanche down the hill. It will be these people, software and companies that will thrive and that will win in the next wave of the Web. Because more than great content we need great editors. Content’s days as King are numbered. Context is the new heir apparent, and the overthrow couldn’t happen soon enough.

Marketing’s New Frontier: The Facebook Stream

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I first heard the idea of Stream Marketing in this AdAge article, where the author explored how brands were marketing with Facebook status updates. The article looked at Oreo and other big brands who had figured out that the mundane updates were the ones that got the most engagement. And, by virtue of the Facebook social graph, also the most exposure and attention for the brand on the social network. Stream marketing is the practice of optimizing your outgoing status updates to get the most engagement (and therefore reach) with each one. It’s about being intentional in the stream, and cultivating your brand persona with well timed, and executed updates. As a social marketer, it’s imperative that you go beyond the network-presence level of social marketing, and get down into the front lines, update by update, to maximize the brand’s presence in the stream.

Stream marketing is the next frontier of online marketing. Many people and companies talk about using social marketing; but how many are actively thinking, planning and optimizing their stream marketing? It’s a huge, open field with few boundaries and rules for the road; and lots of debate about what is, and isn’t good marketing in the stream. But what does it really look like? Let’s look at that AdAge article:

As it turns out, many people in social networks don’t want to talk about your product, they just want to talk. We’ve long known that inserting brands into social-media channels requires a conversational touch, but many are surprised by just how conversational. There’s increasing evidence that the most-effective kinds of marketing communications on these websites are simple, random, even banal statements or questions driven by the calendar or the whim of a writer that may not have anything to do with the brand in question.

What are you doing this weekend? What is your ideal vacation? What’s your favorite movie or book? On Veteran’s Day, BlackBerry posted a simple holiday-related message that received nearly 8,000 likes and more than 500 comments, many of which consisted of veterans thanking the brand and posting their PINs, allowing others to contact them via BlackBerry messenger. Reaction to that update far outpaced other recent ones concerned with products or tips.

The key here is the conversational element. Being able to create a dialog around your brand or product is what drives the spread of your brand through Facebook’s social graph. Facebook’s algorithm, called EdgeRank, uses the number of comments, likes and shares of an item to determine what bubbles up to the user’s Top News feed – the default view of the News Feed for most of Facebook’s 500+ million members. Items with many comments and likes get seen by more people, driving the virtuous cycle of the viral spread of the message to your fans’ friends, and so on. Without any engagement those status updates just fly by, in a river of noise, unnoticed.

Facebook knows that brands and marketers are paying attention to their stream marketing efforts, and have started adding some rudimentary, yet valuable, stats underneath status updates visible only to the page administrators. Now with each status update you can see the number of impressions received by the status update as well as the percent feedback received for each of these posts. Now marketers can start to really see what is connecting with their fan base, and not just throw stuff against the wall to see what sticks.

The impressions number is important because it’s representative of the number of how effective that message was at propagating through the social graph of users. Getting content into that Top News feed is the best way to reach people on the network, and so the number of impressions can be used as a proxy for how effective that update was at achieving that goal. The feedback is a critical number for obvious reasons. The higher the feedback, the more engaged the users are with the brand around that update. You get all sorts of benefits from that. You have more awareness, you can drive action that’s tied to a KPI, you may get more affinity/loyalty, and you also get the Edge Rank boost as mentioned above, driving that status update into the Top News feeds of your fans’ friends and creating the opportunity to gain new fans, and build greater awareness with people not already connected to the brand on Facebook.

The status data from Facebook isn’t real time, but it is fast enough to let you make some smart decisions very quickly. For example, looking at a recent client’s feed, we realized that their fan base was very engaged around Mad Lib-type, fill-in-the-blank status updates. In fact, they were performing at 4-to-1 compared to other updates. So we made a recommendation to mix more of those types of updates into the stream. The result has been more engagement around more status items, which is exactly the goal. Of course, we also cautioned them not to overdo it, as you don’t want to exhaust a fun outlet for fans; but it was a way that they could shift their stream marketing ever so slightly to get better results.

Stream marketing requires a mix of planning and thought combined with the ability to rapidly respond and shift based on what’s working and what isn’t, all while keeping with the brand voice and persona. With such a fast-moving environment it’s easy to get off brand in a hurry, so it’s important that the people managing your stream understand the brand voice to the core and have a working playbook of ideas, themes and do’s/don’ts that keep them on brand in this fast-paced environment.

It is the evolution of marketing from editorial calendars to playbooks. Let me use a football analogy here. In most football games, a team has its first 15 or so plays scripted. That is, right out the gate, no matter what, they’re going to run 15 plays and see what happens. These are based on their best research and planning, and allow them to test their theories about the opponent, etc. This is very much like a standard editorial calendar. Here are the items we’re going to go to market with, because based on what we know we think they’ll get the best response. But after those 15 plays are done, it’s time to go to the playbook adn call plays based on the response of the opponent.

The same is true in stream marketing. You can start with a strategy and an approach, and you can even stick to it at the start; but then you need to start adjusting and responding to what is and isn’t working if you’re going to have success connecting with fans on Facebook. And much like a football team, marketers, copywriters and community managers can call a play, but whoever is driving the feed activity is the Quarterback, and they need to be able to audible into other plays and strategies based on how their fans respond. From the AdAge article:

“When you have ad agencies or copywriters writing your Facebook copy, it ends up being promotional in nature and if you’re not inspiring feedback no one’s going to care,” said Sarah Hofstetter, senior VP-emerging media and brand strategy at 360i. “You can only talk about your product so much. Balance that with you’re not trying to be their best friend, you’re trying to achieve some marketing objective.”

So how can you be effective at stream marketing? Here are a few tips:

  • Create a strategy and approach to stream marketing that fits with your brand and brand voice
  • Create a rules of engagement document that outlines what is an isn’t on brand for status updates
  • Set a soft editorial calendar for the first handful of status updates to learn what does and doesn’t resonate with your audience
  • Create engagement opportunities by asking questions and using fill in the blank statements
  • Use the stream insights provided by Facebook under each item to see what works and what doesn’t work, and refine accordingly
  • Create a playbook of ideas for conversation starters and status updates that your community manager can go to at any time to engage the fan base
  • As with any online marketing effort: test, learn, refine, test, learn, refine, repeat ad infinitum.

By effectively marketing in stream you can “inspire feedback” driving the virtuous cycle of extended reach across the network, leading to better results and greater return for your Facebook investment.

Businesses Don’t Let Your Employees Grow Up to be Mayors

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Having an employee as your mayor is bad for business. As more users and businesses stream on to Foursquare to take advantage of its unique game play and marketing opportunities, it’s important for businesses to ensure that their Foursquare-using customers don’t lose interest in checking in because of a stalwart Mayor who’s entrenched atop the leaderboard simply because they work there. If none of this makes sense, read on to understand why this is important.

Part of the appeal of Foursquare, the fast-growing location based social network, where users “check in” to physical locations on their phones, is the ability for users to earn points, badges and special offers from businesses. A particularly coveted achievement in Foursquare is to become “Mayor” of a location. A Foursquare Mayor is the Foursquare user who has checked into that venue more than any other Foursquare user over the past two months. Think of it like a digital representation of your best, or most-frequently visiting customer on the network.

For Foursquare users, being Mayor at a business without a special offer is little more than bragging rights. A way to claim some small piece of ownership in a location, to be the most regular of the regulars. But this is a surprising motivation. Foursquare has become so popular due to the game mechanics built into the social network. Game mechanics are mechanisms, like earning points and Mayorships, that are built into the product that make you more likely to use and enjoy the service. With Foursquare’s success, the gamification of social networks and applications has exploded (for good and bad, but that’s another post,) but they are core to the Foursquare experience.

Which gets us back to why as a business you shouldn’t let your employees become Mayors, and should ask that they not check in when they get to work. Because when your employees occupy Mayorships they make a key achievement of the Foursquare game unachievable. Which dramatically reduces its effectiveness as a marketing tool and an experience as a user. When a Foursquare user can’t become Mayor, no matter how many times they check in to your business, they get frustrated. They may even give up on checking in to your business. They may even find somewhere else to go.

It’s true. You may be reading this thinking, as a marketer or business owner the last thing I need to worry about is whether Foursquare users can become Mayor, “I’m trying to run a business,” you say. And I hear you. And for big brands and multi-location chains, it’s even harder. How do you communicate to all store owners and all employees to keep Mayorships open? It seems like a low priority, if you can even call it a priority. But before you roll your eyes, take one quick look at the Foursquare GetSatisfaction page. There you’ll see hundreds of complaints about employees being Mayors of their favorite establishment. Which is a small, connected and passionate ecosystem is a significant amount. It’s a real problem, and it can impact your business and your brand experience.

Luckily he fix is easy, simply get a Foursquare account yourself, claim your business on Foursquare.com and monitor the check ins to your business.

Claiming Your Business on Foursquare - Image via Foursquare

If some of your employees are using Foursquare ask that they not check in while they’re working, or at least not every time, to the point where they’re they intractable Mayor. That’s it. Whether you have one store or 100. Simply monitoring check ins and identifying possible employee check ins will keep you on top of it. Communication and reminders to your staff about the benefits of the service and your rules for engagement while at work should do the trick (you might have to remind your team more than once.) But I don’t think you should ban your employees from checking in at work outright, it’s more nuanced than that.

The reason there is some nuance into how often your employees check in, is that you may want your employees to check in to get some visibility across their Foursquare networks. When a user checks in at a location, the other people in their network are alerted and the location is displayed on their phones. This can be a valuable way to create top-of-mind awareness among users in your area, which can lead to new customers. For example, if I see my friend has checked into a restaurant lately, I’m more likely to add that restaurant to my consideration set the next time I want to eat out. It’s powerful stuff.

So, it may make sense to let your employees check in to some degree, which is some free advertising to people near by, but as your traction builds on Foursquare it becomes critical that you ask your employees to refrain from snagging the coveted Mayorship.

Why isn’t there a way for businesses to identify employees so that Foursquare knows not to award them the Mayorship, you ask? Great question. And one that Foursquare has addressed, at least partially. If you’re a business who is running a special on Foursquare, you have the ability to identify Foursquare users who are employees so that they don’t impact the offer. Offers on Foursquare can range from “Check in here to receive XX% off your purchase,” to “Get a free drink with your Xth check in,” to “Mayors eat free on Tuesdays.” You can see that having a Mayor-only special when your customers have no shot at the Mayorship is just bad marketing and bad for customer morale. When running promotions on Foursquare then it’s important to understand which of your employees are using Foursquare and exclude them from eligibility.

But if you’re not running a special, if being the Mayor isn’t tied to any financial reward for your customer, it’s still important to the game dynamics of the platform, and therefore important to your visibility on Foursquare. Because if your Foursquare-using customers sense that it’s pointless to check in to your venue, you lose visibility to a highly motivated, connected, and outgoing community of people in your backyard, costing you potential future business and the goodwill of your best customers – the one’s stopping in to buy something, and to become Mayor.

Google Gaga for Groupon’s Growth

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The rumors started Sunday night with a note from Vator News that Google acquired Groupon for $2.5 billion. Now Kara Swisher over at BoomTown puts the number of the Groupon Google Deal at $5-6 billion. Whatever the number, the reasoning behind it is clear. Google is in a desperate hunt for revenue growth. Groupon is the fastest growing business on record. Google wants to finally crack the local nut after years of battling for SMB dollars with yellow page directories, Groupon is a sensation among small business owners. Those two factors make Groupon a must win for Google, and they’re willing to pay a premium for it.

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Google needs Groupon for growth. Google has no doubt been on a tear, but in 2009 they slowed, dramatically. Google advertising revenues grew 59% YOY in 2007, 29% in 2008, and just 8% in an admittedly tough economy in 2009. And in 2010, it looks as if advertising revenue will grow somewhere in the neighborhood of 15% if Q4 revenues are in the ballpark of the rest of the year. And while most companies would love to see this track record of growth, it can’t be satisfying to Google execs who have seen companies like Apple see their revenues and market caps up big. And even private companies like Facebook and Twitter are reporting big gains in users, big gains in advertising revenue (with Facebook’s purported $1 billion in revenue this year) and getting impressive private valuations.

It’s clear. The battle for web dollars is on. Google is turning more into a utility with good but not great growth while the aforementioned high fliers are getting the growth, the spotlight and the valuation. For Google, Groupon is the perfect antidote. An infusion of growth for a company that really has no other answers.

Think about it for a minute. Google’s big acquisitions YouTube and DoubleClick are not growth centers. Heck, YouTube is specutively a break even business unit at best. Their enterprise apps, mail, and other products are seeing user growth; but not revenue growth. And Google’s recent spate of product launches (refinements to search, HotPot, etc.) don’t point to any new revenue champs coming from internal teams. All this leads to Google looking for growth, and there is no better growth story on the Web right now than Groupon.

Groupon is enjoying 50% margins and an estimated $50 million per month in revenue. That’s a shot in the arm for Google’s bottom line. And Groupon isn’t even operating at scale yet. They’re still rolling up knock-offs, hiring sales and copywriting staff like crazy, and innovating on the product side to bring Groupon to everyone. And even if small businesses lament Groupon and even if Groupon’s not a great marketing strategy for business, it’s popular, it’s easy and it works to drive numbers to local businesses. And Google, for all it’s done on AdWords and Places has not been able to capture the imagination of small business like Groupon has.

For small business owners Google is hard and confusing. AdWords is competitive, expensive, requires keen oversight and intensive setup to get right. And even after doing all of that, the search query volume for “Pomona pet store” just isn’t high enough to drive real traffic and business to small business. And as anyone in the directory business can tell you, it’s not about branding, it’s not about being findable, it’s all (and I mean all) about making the register ring. Yellow page companies have been chasing this grail for years, with click to call technology and in-depth customer reporting, all in a desperate effort to tie results back to spend. And while Google has a much clearer ROI path and performance model, they can’t drive foot traffic, phone calls and new customers like Groupon can (and like the Yellow pages used to.)

But the yellow pages are expensive with high monthly minimums, and even with the advent of new performance plans on things like search and click to call, the industry doesn’t have a strong way to drive new business in waves (like Groupon) or have clear ROI reporting in line with Google’s.

Which gets us back to Groupon, because Groupon solves the two problems that Google and the yellow pages don’t solve. They get awareness, and lots of it. The Groupon rushes are famous by now. Google can’t generate demand like that, they can only help to harness existing demand and drive it in your direction. They can’t make more people search for teeth whitening; but Groupon can set off a wave of people who suddenly realize they need to brighten up their incisors. Groupon also has the low cost and the yellow pages can’t compete with that; their monthly minimums come and go every month for the entire year. Groupon, in contrast is pay for performance. You only pay for each person that buys, although, you pay out the nose.

When you put it all together, Groupon is a sexy, sexy target for Google. For all of Groupon’s misgivings, it’s a hot company; a big growth opportunity and a model that small businesses get and like, for the most part. So if Groupon is the right play for the company that wants to be the yellow pages of the Internet, the next question becomes the price tag. At $5 billion, this is no small potatoes, and represents Google’s biggest M&A deal ever. The questions are numerous – will Groupon be able to maintain margins in the face of stiff competition (currently at %50, the answer is NO,) will Groupon be able to scale efficiently, will Groupon be able to continue it’s growth? Not likely and not likely. There are only a handful of companies that have successfully cracked the local nut, their names are AT&T, SuperPages, Local Insight Media, Dex and a handful of others; all have large sales forces, and all have low margin, low growth businesses. Interestingly, most have had to reorganize via some form of bankruptcy or acquisition. Can Groupon buck that trend? Questionable. But they do have things going for them that yellow page companies don’t, like no cost of goods and production of books as massive cost centers.

So is $5-6 billion worth it to Google? Buying growth is expensive and companies will pay a premium for it. Just look at Disney’s acquisition of Marvel for $4 billion, all in the name of growth among tween and teenage boys. For Google and Groupon, time will tell; but I think the answer is yes, because Google needs growth, Google has the resources to scale Groupon and Google can leverage the wonderful world of advertiser bundles to sell things like places, tags, and AdWords to advertisers who make Groupon just part of their advertising/marketing mix. I argued that Groupon is not a marketing strategy; but Groupon, combined with thoughtful search, and other localized online marketing can be a part of a coherent small business marketing strategy. Google has all the pieces to deliver that value.

Let me know what you think.

Groupon is Not a Marketing Strategy

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Groupon logo.

Image via Wikipedia

Groupon‘s UK Managing Director Chris Muhr opined today that the reason Google would want to purchase Groupon was because Groupon has “…something that Google does not have and no one else has and that we have really tapped a new market,” but is it really a new market or have the just tapped into the greed and laziness of businesses who long for days of old media? I think it’s the later, which is why the idea of Groupon is at once appealing and dangerous to small businesses and brands all over. But first a bit of background.

How Groupon Works - Groupon highlights one business in each city every day with a sale that’s too good to pass up. (They also have “side deals” and Groupon Stores, but we’ll focus on the main deal here.) Usually 50% or more off retail price of a service or item. They like to focus on a price range that makes the item easily bought on impulse and guide businesses to try to stay under $50 for the best results. So if you sell wine for $30 a bottle they’ll want you to offer it for $12-$15 on Groupon. Then Groupon takes 50% of every transaction successfully processed through the offer. So to continue the example, if you sell wine for $30 regularly, you’ll put in on Groupon at $12 and you’ll end up with $6 per bottle sold. They’ll also set a tipping point for the deal to be activated (the “group”" in Groupon) and will also let you cap your deal at a certain amount of sales. It’s pretty easy to see that if you don’t have much margin built into your product, you’ll be in the red on every sale, depending on how you structure your Groupon. And if you can give up 75% of revenue and still make a profit, it’s likely going to be a very small one, which means you need to sell a lot of units to make any money.

So, then why does a business use Groupon? Businesses use Groupon because they can drive a large number of visitors to a store location with a single event. They hope that the new customers reached by Groupon will buy additional items above what is advertised (if you’re losing money on your Groupon this is considered a “loss leader” strategy,) and/or you hope that they become loyal customers that come back. But I also think they use Groupon because they’re lazy. That’s right. Lazy. And here’s why.

Groupon works a lot like a newspaper ad used to. You find the biggest circulation possible, you make an appealing offer and you hope that you get customers that will come in and like your business. It’s the old “spray and pray” model of marketing that worked so well in the days of mass production and mass consumption. Get it in front of them and they will buy. It takes little thought, little effort. It doesn’t take cultivating relationships, building a brand or finding customers who really need your service. It’s the laziest form of marketing out there.

If you’re a business you have four critical attributes that help drive sales: your brand, your prices, your awareness level and your location. There are of course many more; but let’s look at these four for a moment.

Your Brand – If you have a strong, growing brand, you don’t need Groupon. Your brand drives customers, customer loyalty, word of mouth marketing and strong margins. You can charge more, spend less on advertising and focus on growing your brand through unique experiences and high quality products. It’s a virtuous cycle, but one which few companies get into and fewer still that can maintain it.

Your Prices - If you don’t have a strong brand but you have incredibly low prices then you’ve defined yourself as the low cost leader, you’re first in the race to the bottom and you know you’ll live a life of low margins and need to move a lot of units to make up for it. You also aren’t ideal for Groupon because you probably have a brand associated with being the low cost leader, and Groupon’s pricing structure doesn’t work well in a low margin world (as outlined above.) If you’re priced in the middle of the market you really don’t have a lever for sales on prices because customers can go to the low cost leader.

Your Awareness Level – Among your customer base your awareness level is what drives repeat visits, word of mouth and new customer acquisition. If you have great awareness, if everyone knows that you’re the only 24 hour locksmith or the only tux rental place in town then you’ve got great awareness. If you’re one of 12 women’s clothing stores, like a Chico’s in a strip mall somewhere, you’re awareness level isn’t great. Groupon starts to sound like a good idea here.

Your Location - Unless you’re a virtual retailer with a strong ecommerce presence, you’re really limited to the surrounding area for your customers. How far they’re willing to travel to get to you is a function of all three above. Groupon makes sense here too.

So if you’re a middling business with little or no brand, little or no price differentiation, and a fixed customer base that is more or less only growing with the population in your area, then you have only a few levers to pull to make your business go. You can go about the hard work of building a brand in your community. Connecting with core customers, building word of mouth by creating an amazing experience, or demonstrating expertise above and beyond the competition. Or you can cut your prices, be the unbeatable low cost leader and price match anyone else. People know that they’ll get the lowest price from you and that goes a long way. Or you can increase your awareness by advertising, sponsoring events, etc. Or you can open more locations, a capital intensive process that may or may not work for your business.

Or, you can Groupon. Because with Groupon you don’t need to do any of that. You just spray and pray. Cut the prices on an item and let Groupon do the rest. But is that really it? Do the customers come back? Do the customers care that you exist? Do the customers remember who you are and where to go the next time they need something you provide? There are plenty of Groupon disaster examples on the Web that say “No.” Because without thoughtful marketing in place, Groupon is just a flash in the pan.

In the PR trade they say “Getting on TechCrunch is not a PR strategy.” I say “Getting on Groupon is not a marketing strategy.” And it’s where I think Chris Muhr is wrong. Google provides the savvy, thoughtful marketer a lot more than Groupon ever could. It provides the people willing to invest in their brand, their customer experience and their awareness with an avenue to showcase their business to people actually looking for them, not just people looking for a rock-bottom deal.

This goes for big brands as well as small businesses. If your brand is flagging, and you’re undifferentiated among your competitors Groupon is not going to solve your woes. It doesn’t matter how many gift cards you sell if you can’t convert those customers into repeat customers and advocates of your brand. And if you don’t fundamentally change your brand and the customer experience then Groupon will be nothing more than crack for your marketing department. Because each time you run a Groupon you’re high will be a little less than the last time and your hangover will be a little worse. For every Groupon you run, you dilute your brand a little bit. Do it once and it’s a marketing stunt. Do it over and over and you begin to redefine the value of your product or service. You hurt your brand and any differentiation you had. You’ve chosen the low cost leader, commodity approach. Prepare to accept the consequences.

So can Groupon work? Absolutely. Is it the right answer? Maybe once. Is it a strategy? Absolutely not. Is it easy? Too easy. Small businesses and big brands should focus on reengineering their customer experience from the web site to the warranty service. And when that is done then, maybe, it’ll be time to shout it to the world with Groupon. But more likely, the people that have been blown away by the change in your service will have already told the people you want to reach. Don’t be lazy. Do your job. Your brand and your bottom line will thank you.

Photos are the Love Letters of the Social Web

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Instagram, Hipstamatic, Path, the list goes on and on. Photo taking, editing and sharing apps are gaining momentum right now as more and more people use quick photos to communicate with their friends and family. Years after Flickr and Facebook reinvented the photo as a shared, social object, these new apps are transforming how we communicate, from short text-based status updates to candid, interesting photos. Some people are wondering why these photo sharing apps are so en vogue right now, but I think the answer is pretty simple – people want more than text to express themselves. As the on-board cell phone camera technology has improved pictures have become a more viable and attractive way for people to express themselves online. With our new cameras and better upload ability photos have become the new love letter for the web.

We’ve talked about the “statusphere” since the dawn of Twitter. Short text bursts were our our only option if we wanted to participate in the social web. But they were lacking. Sometimes, words just don’t do it. Text is great for relaying information, facts, quotes, etc. but photos are a much more emotional. They not only serve an information need, they serve an emotional and phatic need as well. These facets are often missing in text form, or if they’re there, aren’t nearly as profound or effective.

So now, instead of typing what we’re doing, we’re sharing what we’re doing visually with these apps. Our phatic expressions previously text-based, are being replaced, and in a hurry. The rush to join Instagram and the rest of the photo sharing/taking apps is a direct response to this emotional void that photos fill that text just can’t touch.

For example, I share photos with my girlfriend throughout the day. We snap pictures of what we’re doing, our kids, our workspaces, our shopping carts, our friends, and more. These aren’t award winners and they won’t end up on the mantle; but they’re a powerful way to say “I’m thinking of you. I wish you were here. I love you.” A picture of my son coloring is far more emotionally engaging than a text message that says “we’re coloring,” and that is what makes the photo sharing so appealing to us as users.

But there’s another thing going on here. Because people could MMS well before Instagram came along and they could share on Flickr and BBS’s long before that. And I think the secret ingredient is the filters that come on these apps. Because when you take a photo you’re documenting an event; but when you add a filter to the photo you’re adding a mood and personality to the moment. You’re marking it for posterity. You’re able to add what the camera can’t see. You’re making each picture special. And that last step is what makes sharing so interesting. In some way, you’re able to idealize the moment, and that makes sharing far more interesting for both the sharer and the recipients. It isn’t just cold reality captured by an unforgiving, inhuman lens. Rather, it’s the scene as it appeared in your mind (to some reasonable approximation anyway,) and you’re able, in some small way, to share your life the way you see it.

And people love this. Because it’s their editorial touch on the reality captured by the camera. And it lets them put their voice into the picture. The picture and it’s alterations say as much about the person as anything else they share.

This ability to alter the mundane into something special resonates with users again and again and again. We see this behavior and rapid adoption whenever a company can add an extra layer of meaning on top of an everyday item. For example, it’s not Starbucks coffee, but what the coffee and logo say about the drinker and how it makes that person feel. It’s the design of the Mac and the aluminum casing and what that says about the person holding the laptop.

And now these photos are capturing and conveying that same idea. It’s not the photo necessarily, its presenting the moment the way we choose to represent it, and what that says about us and who we are and the life we choose to lead. The photos are love letters to the people we love and care about and to ourselves. They make the mundane significant and add importance to what we experience, big and small.

Idealizing these moments is what makes these photos the love letters of our time, and what makes these apps so popular.

There are important ramifications for this change in behavior from a business and social media strategy standpoint as well. As more people share and engage around photos brands will have to find a way to participate in this preferred way of sharing content online. The Daily Beast reported that photos and videos get more interaction on Facebook than text updates. Images and videos get more comments and likes than text updates (on average,) which puts them in more Top News streams and in front of the customers they’re trying to reach. How can brands adapt to this? By sharing more photos and video of course – photos with an emotional appeal that resonates with their customer base.

It goes beyond just social sharing though, and has much broader implications for product design and development. How do you let your customers express themselves in a way that resonates with them, that helps them depict an ideal/romanticized version of their world? How do you give customers lightweight ways that they can take the raw product and add their idealized filter to it to make it truly one-of-a-kind, truly theirs? How can you help your customers portray not just their reality, but the reality in their mind’s eye?

Increasingly we are able to share more about our lives via text, photo and video. And increasingly we can craft and present our lives to be displayed perhaps not as they are in the harsh light of objective reality; but in the idealized vision of our own emotional lens. And products, like Path, like Instagram, that give us the ability to capture that state and to share with our loved ones and the world that our life is filled with interest and wonder and love are the ones that will continue to succeed in the social space. They say photos are worth a thousand words. In an age when people proclaim that SMS, Twitter and status updates are killing our language, these photos show that expressing our love to those we connect with and care about is healthier than ever.

Brands Beware: My Klout Score is a Farce

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A lot has been made of Klout scores lately.  (update: good read from on how to fix Klout by Mark Krynsky, a funny Klout rant by Michael Sean Wright) Brands wanting to get positive word of mouth on Twitter are using the score to ID influencers that can help build buzz by sharing their experiences with their audience. Disney, Virgin America and Fox Television are just some of the brands that have tapped Klout as part of getting buzz online. The Palms Casino announced the formation of the “Klout Klub” which will use Klout to determine the type of treatment and upgrades you receive based on the amount of influence measured by the service. But brands need to be careful using Klout, because, most Klout scores are a farce.

Klout only measures the “influence” of the individual on Twitter and Facebook, and doesn’t, by definition, take into consideration the individuals true influence. Not only that, but the algorithms used by Klout to measure influence on those networks seem questionable at best. Klout scores are primarily a vanity metric, and their relevance, is at best, directional. But they definitely don’t tell the whole story, and brands that use them to deal with online influencers can find themselves blowing off people with extreme influence that just don’t calculate on the high end Klout influence score.

The problem is not that Klout is inaccurate. It’s not even that their tagline is misleading, “The Standard of Influence.” They’re a new web service after all, trying to tackle a near-impossible task of ranking every user on the social web as it relates to influence. The problem is the lack of sophistication that brands have when it comes to understanding the complex nature of influence online and connections across these networks. Klout being inaccurate is just like any other stat being inaccurate. It’s fine, until you start making business decisions based on flawed data. A brand who stakes building their reputation on Twitter using Klout as their guide is making a grave error. They’re paying attention to bad data, which can be more dangerous than no data at all.

As brands wade into the social web and look to influence conversations to the positive benefit of their business they must realize that there isn’t a tool or service that can actually do the heavy lifting for them. They need to participate, observe and (wait for it) listen to the conversations that are impacting their business. Only then can they be confident that they are reaching the true influencers that are relevant to their business.

To demonstrate the point, here are 11 people that have loads of online influence, and even tons of influence on Twitter, should they choose to use it, that have lower Klout scores than me. I’ve got a 63 as of the time of this writing. These folks all use Twitter frequently regularly, so the idea that use=influence, while flawed to the core, is even inaccurate in these cases.

On this list we have CEOs, well-known and respected authors and reporters, the founder of the largest social media organization on the planet, and the guy that started this whole social Web thing with The Cluetrain Manifesto.

Doc Searls – Klout 56 | Doc Searls’ blog

Co-Author of “The Cluetrain Manifesto”, founder of VRM, Fellow at Berkman Center for Internet and Society at Harvard, much, much more.

Doc Searls Klout score

Tim Street – Klout 56 | Tim Street’s Site

Tim’s founded one of the most influential online TV series with French Maid TV, and is the leading voice in online video and content creation.

Sarah Lacy – Klout 58 | Sarah Lacy’s blog

The author of two books, with writing and video credits including BusinessWeek, TechCrunch, Yahoo! and more.

Brett Bullington – Klout 46 | Brett Bullington’s LinkedIn profile

Respected investor, including board seats on Digg, Oodle, Next New Networks and more. Investor in Flickr.

Kristie Wells – Klout 56 | Social Media Club

Founder of Social Media Club, the world’s largest organization of social media professionals with more than 200,000 members.

Stephanie Agresta – Klout 49 | Stephanie Agresta’s Blog

EVP of Social Media at Weber Shandwick, and founder of TechSet, the popular event organizer at premiere social media events.

Ryan Holmes – Klout 49 | HootSuite.com

CEO of HootSuite, one of the leading social media dashboards.

Cathy Brooks – Klout 55 | Cathy Brooks’ Twitter Stream

Well-respected thought leader about the impact of the social web on business.

Bryan Elliott – Klout 50 | LinkedOC

Founder of Action Sports Network and LinkedOC networking groups with nearly 10,000 members. Hosts influential thought leaders in the OC with his popular events.

Mark “Rizzn”Hopkins - Klout 56| SiliconANGLE

Editor in Chief at SiliconAngle. Former writer for Mashable.

Laurie Percival - Klout 48 | Lalawag

Founder of Lalawag, influential Los Angeles tech scene blog.

Me

If the Palms or any other brand decided to ignore these people while paying attention to me (or treating them differently than me,) they’d be doing a huge disservice to their business.  It’s up to the strategists that are working with these companies to inform the business owners of the inaccuracy of the data, the value that they can place in it and the work they need to do to ensure that they’re reaching the people that really matter to their business – regardless of the score assigned to them by Klout.