Groupon's Biggest Threat? Local Publishers.

UPDATE 6/9/10: This was reposted on Business Insider.

Groupon has spent a vast fortune building two important barriers to entry in the group-buying space:  brand authority and distribution.  While that investment may hold off competition from newer daily deal services, there are existing media properties in each local market that have spent decades building their brand and distribution:  local newspapers and magazines.

The local publisher advantage

According to Robert Cialdini’s best selling book on consumer psychology, factors that motivate individuals to act on an opportunity include:

• Scarcity. Is this opportunity available for a limited time, or is there a limited quantity?
• Social Proof. Are others acting in a similar manner (purchasing the deal)?
• Commitment. Is this decision consistent with a choice the individual has made in the past?
• Liking. Does the individual know and like the purveyor?
• Authority. Does the source hold sway?

The first two factors bode very well for daily deal services like Groupon, who typically leverage some combination of scarcity of time, scarcity of product and social proof when presenting their deals:

The remaining factors (Commitment, Liking and Authority), however important, are challenging for new services who lack years of interaction with consumers. These factors play into the specialty of local publishers, who have historically recommended local restaurants, shops and services to consumers. Not surprisingly, we’ve seen several major players start to get into the game:

• Boston.com: Deal of the Day (partnership with BuyWithMe)
• The Orange County Register: Deal of the Day
• San Diego News Network: SDNN Daily Deal
• The San Diego Union-Tribune: SignOn San Diego
• San Francisco Chronicle: SF Gate Daily Deals (partnership with TownHog)
• Time Out New York: Relax for Cheap (trial partnership with Spa Sally’s $25 Tuesdays)
• The Washington Post: DC’s Big Deal (partnership with LivingSocial)

These publishers and others are looking to capitalize on their meaningful Authority, Commitment and Liking they have generated amongst their large audience of consumers who look to them in making local decisions.

While it remains to be seen whether local publishers will dominate the space, Groupon CEO Andrew Mason lists local papers, television and radio as the company’s largest source of competition in an interview with All Things Digital’s Kara Swisher (see 4:48).

Four keys for local publisher success

Focus on email. A page on a publisher’s site may fall short in effectiveness compared to a dedicated email subscriber base. Local content creators should drive dedicated email subscribers and leverage their existing email lists in their crafting their deal experience. The ones that already understand this, such as email newsletters, may have an easier time entering the fray. To this point, on the online sample front, DailyCandy already operates Swirl, and Thrillist recently acquired JackThreads. We may soon see these companies and others enter the local daily deal space as well.

Leverage legacy content. Local newspapers and magazines have a library of restaurant, bar, shop and service recommendations they made in the past. Just as studios leverage their film and television assets through DVDs, local publishers can point to past reviews in their daily deal offerings. Focusing on previously reviewed business may facilitate the sales process – local business who received sales boosts around their initial review would jump at the opportunity to be featured once more. Most importantly, utilizing historical endorsements maintains separation of editorial and commercial content.

Outsource. Some publishers face major internal hurdles to reorienting their web experience and marshaling their sales staff to roll out a full service group buying solution. Hosted group buying solutions, such as Group Commerce and others, who provide technology and/or sales solutions to publishers looking to present daily deal offerings to their consumers. Many of the publishers above pursue partnerships with existing deal services (such as four of the six above). Those may be an effective solution, but owning those email addresses for the long term will be key.

Present exclusive offers. As we mentioned in our analysis of Gilt Groupe’s daily deal offering, exclusivity can be a compelling aspect of a daily deal. Local publishers can present their offers as exclusive to their readers, reinforcing the value of the publication and adding excitement to their offer. >