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.

Deal of the Day

Newspapers and city magazines ought to be kicking themselves (yet again). Several start-ups have emerged in the last 12 months rolling out dazzling deals of the day for savvy bargainistas. GroupOn and LivingSocial have been the front runners, with TownHog nipping at their heals. All three are out canvassing merchants around various cities for compelling wares and services to dangle before audiences looking for "such a deal!"

I first bumped into GroupOn several months ago when searching for play tickets in Toronto. LivingSocial I read via HuffingtonPost -- and while researching this article I tripped over TownHog. All three have a similar model that advertisers love: pay nothing upfront to have someone else market your product. There is only a charge to the advertiser if the product sells. And what could be a better deal for retailers trying to drum up business than a risk-free promotion! Further, for a deal to go through, a certain threshold of takers needs to be met, if not, there is no deal. This incents consumers to virally promote the deal among their network.

Of course there are drawbacks: Retailers need to know that they can handle the demand if the deal is truly a great one. (I had a meeting with one national brand -- whose IT department found out that the company would be offering 50% off from Web site sales -- just 7 days before the offer went live. They were terrified that the servers would crash. They didn't.)

And, I have heard rumblings that some of the deal-meisters pay retailers at a slightly slower rate than others (can't confirm that). My brother-in-law has been trying to get a GroupOn rep to call him for a few months -- so perhaps there are some growing pains.

There are some newspapers like Media General & McClatchey that are catching the tiger by the tail and partnering and sharing revenue with these daily dealers. In Media General's case, Groupon is selling and developing the clever creative for offers -- while Media General markets the offering. (In some cases this creative is the ONLY web presence the retailer may have.) No word on the revenue split.

Here's the deal though: Media General like all newspapers OWNED the local market when it came to sales and fulfilling creative in print. How in the world could they let some outside organization get close to their customers -- and offer the marketing platform?? At least be the sales arm for the venture! It certainly seems that this is short-sighted at best -- and yet another lost opportunity for local news organizations to find a model that makes them relevant and solidify their reason for being.