Younger than a toddler & worth $6Billion???

Man, newspapers really should be kicking themselves.

Just hours after I wrote about the Deal of the Day mavens, Google announces an astronomical bid of $5.3 billion for the upstart Groupon and another $700k in incentives. According to analysts cited in a New York Times article,  the Chicago-based neophyte, is pulling in $500 million in revenue -- and achieving profitability. That is a staggering amount of revenue for a relatively simple business model. The company has about 3100 employees in 300 markets -- so do the math -- that's about 5-10 feet on the street selling online ads to all the little local spots that most likely can't afford to have its own Web presence.

That Google is interested in Groupon's connection to these micro-retailers is a no-brainer. For years Google has been trying to figure out how to get into the local market -- even trying to woo newspapers to virtually rent out their sales force to sell local ads. It was a bust. And of course it was!!!

Those of us in the industry assume every company is as digitally aware as we are. And that's hogwash.

When a small business is born -- it starts with an idea that is usually financed with a severance check.  Whether its a service or a retail shop -- unless those entrepreneurs have relatives that can provide HTML, graphics and editorial -- the Web offering is often anemic at best. In my opinion that is why Groupon is successful. They serve the low end of the market that the Clipper magazines and Weekly Shoppers do -- but via the Web. I don't know if it is part of its business model now -- but if I were Groupon, I would create a directory and let each of its customers keep the Web page created for them up on the Web for an annual fee. My bet is, this is likely the only (or at least the best) Web presence these small companies have.

Almost two years ago, I wrote about how newspapers are not serving this "down market." Dailies should have been all over this model -- and created it on their own! The Groupon/LivingSocial/TownHog template is staggeringly easy to build. Which is why some analysts are gagging on Google's gutty move. “A multibillion-dollar valuation for a company that is in a business with virtually no barriers to entry and is younger than my toddler is absurd,” said Sucharita Mulpuru, Forrester Research retail analyst, wrote in a note to clients on Tuesday morning.

Low barrier to entry, younger than a toddler -- and raking in $500 million. And so why aren't newspapers doing this?? I know creating a directory of deals may not earn you a Pulitzer Prize -- but last I checked the old cash cow of Classifieds weren't so sexy either. And with the money coming in -- at least you could continue to afford the journalists.

Tale of a Small Town Retailer

My 80-year old father started up a contemporary furniture boutique in 1959, and has weathered the cyclical and catastrophic ups and downs of his local Buffalo, NY, economy -- particularly the 1970s when Buffalo dropped from a top 20 metro market to a top 50. That slide represented population -- and dollars lost. Never large enough to expend huge dollars in advertising, he reached out to neighboring Toronto and Rochester by placing ads in the local YellowPages.

His turning point was the web. In 1995, his son-in-law John Kenyon and I put his store on the web, and for the next 13 years, the online drove the success of the store. The last 12 months have been a tough one for a luxury retailer -- although ironically enough, the local economy is doing pretty well. So online sales are down, and not wanting to stand still, the family business is looking to put a satellite store into a local shopping mall which attracts nearly 20,000 a day, 20 percent Canadian. The purpose of the store is to be a representative outpost of the larger, more secluded location.

The objective of this post is to show how real-world retailers, small business owners who represent employment for more than 50 percent of the population, are grappling with high costs of advertising and declining margins. When we in the media industry get together to pontificate -- we forget about this half of the equation: the small business owner.

In the past it made better sense to go for the long-ball, as these folks could be a pain in the ass to service, since they money they spend is usually their own -- and they are more emotionally tied to results. However, with the winds of change, the ball ain't sailing out of the park like it used to and media is forced to figure out how to serve that other half. But here's the thing, that other half doesn't feel they have a lot of viable, affordable and effective options when it comes to getting their messages out there. My dad's business is lucky; he had a son-in-law who understood the vision of the 'Net and a daughter in the digital business and the combination yielded a top-notch site long before others thought to get an email address. Many others his size didn't have the vision or know-how.

For newspapers and magazines to thrive on the web, they need to figure out how to serve this end of the market: the folks who would rather spend $500 a day to open a second location to reach 20,000 people daily -- because they aren't sure that $150,000 in advertising will yield the same results.