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Mark Suster of GRP hosts a weekly online video show entitled "This Week in Venture Capital". I am a fan of the show for its insights into the thinking of leading VC's and entrepreneurs. Last week, Tige Savage of Revolution appeared on the show and it is certainly worth a view.
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Both LivingSocial and Groupon took the big leap and made the big investment into Super Bowl television advertising over the past weekend.
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Given the multi-million dollar table stakes, this wasn't a small decision for either company. And with the massive audience watching the ads, it was a significant moment in each company's history and brand development. And, ultimately, both companies succeeded at communication and definition of their company brands with their advertisments. I suspect a broad swath of America has much better understanding of LivingSocial and Groupon and their respective values today.
In fact, both LivingSocial and Groupon took some risks with the ads. I won't speak to the content of these ads but it does strike that they are emblematic of the need for entrepreneurs to continually take risks. Even, or especially, when the stakes are highest. Which isn't any different than when starting out a company. It is worth noting, that it never gets easier for the entrepreneur as the stakes get larger. But it does get more rewarding when it works out. Which is another way of saying that it never gets boring and that is one of the reasons why the entrepreneurial experience is always an adventure. Kudos to both management teams to putting themselves out there.
LivingSocial's Ad
Groupon's Lead Ad
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This was a great TV appearance following the Amazon investment announcement.
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The statement above has been historically used to declare ascension of one king to the throne upon the death of his predecessor. Today we see many reports about the death of display advertising and the vehicles (newspapers and magazines) supported by it. But display advertising isn't dead, it just taking new forms. In the process of taking new forms, it is changing modernizing its business model and supporting new vehicles for display advertising.
Just as Google revolutionized online display advertising by changing the business model from impressions to performance based (cost-per-click) pricing, there is an emerging generation of companies changing the business model and primary media of display advertising. (One of those companies is LivingSocial, upon whose board I sit, and get to see this sea change first hand.)One area where this change in the display advertising market is visible is in online group buying. It is my belief that people often mistake online group buying as a fad. I would argue it is a far more fundamental change, a seismic shift in the display advertising market. This shift is from simple display to performance advertising. And just like in online advertising before it, this is a big, compelling shift. What makes it even more significant, is that group buying is bringing performance advertising to smaller, local merchants.
The idea of group buying, usually of coupons, where everybody gets half off at restaurant ($50 coupon foor product priced at $25) so long as 100 people commit to participate, is but one of the shifts in the display advertising market. The restaurant industry employs 12.7 million Americans in 945,000 locations — and 2010 sales are expected to reach $580 billion. Even at 5% of sales for marketing/advertising expenditures, the restaurant industry is a potent economic force.
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The restaurant industry has historically done its customer acquisition through advertisements. The performance associated with the investment, like all display advertising, has been largely unclear. The restaurant management is never fully aware of the specific impact of the
advertising effort or expenditure. This essentially is, in a world of CPC/CPA, why display advertising is losing its market share
to online.
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Let's consider, Option 2, our restaurant owner's chooses to pursue performance based advertising via something like LivingSocial DailyDeal. (Hey, had to get that in there somewhere) LS offers the restaurant owner the following deal. LivingSocial will create an advertisement for your free of charge and promote the advertisement to its 10's or 100's of thousands of our users for 24 hours, also free of charge. LivingSocial DailyDeals will structure a deal with you, the offer/call to action of the ad, that will entice customers to buy a coupon for your restaurant. (This offer will usually coincide with the restaurant cost of goods which is around 1/3 of retail on average. The restaurant can set a minimum level of purchases for the deal to be sold so there is no risk of expending effort here unless it is worthwhile. All of which minimizes or almost eliminates financial risk)
The restaurant can set a maximum number of deals to be sold via the advertising. Just like Google adwords, by the way, which allows advertisers to cap and control expenditures. Now, here's kicker for the restaurant owner, LivingSocial will cut a check TO the restaurant owner following the ad campaign's successful run. Hmmm, for the restaurant to weigh, write a check or receive a check, write a check or receive, ok they don't get to a third consideration. Who would?
But the benefits don't end there, after the campaign has run, the restaurant owner will see numerically and obviously the impact of the advertisement (that they didn't pay to create or run) on their business in the following weeks as coupons are redeemed by customers (new and old). The restaurant owner can now advertise via Cost per Acquisition for customers without any upfront investment or financial risk. On the back end, they can see how many coupons were redeemed with a full assessment of the return on investment of the campaign. The restaurant owner can look at display advertising in a whole new way. She can drive her business with cost per acquisition rather the uncertainty of projected yield . That is a big change.
It is a powerful change. Not one limited in scope or reach to groups buying in unison.
It is bigger than that.
It is the future of display advertising.
The King is Dead. Long live the King.
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The nominee list is large and there are a lot of deserving companies. Glad to see Grotech's portfolio well represented with nominations for BroadSoft, Clarabridge, Invincea, LivingSocial and Zenoss. It is always a fun evening and usually a sell out event.
Here is a link to the nominee list and registration information.
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I recently had the opportunity to chat on a Dallas CNN Radio affiliate about LivingSocial, Facebook privacy and the location based games 4Square and GoWalla. The host, Winston Edmondson, has a popular show and we had fun kicking around some issues of the day.
Here is a link to the interview
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Nonetheless, the quick secession of financing rounds and reported high valuations has caused some to refer to this as a "frothy" market akin to the dot com boom. The dot com boom did differ materially from the current social commerce market as the former valued users alone while the latter adds revenue to the equation. And revenue is a preferable way to value a company. So these valuations are as 'frothy' as their revenue dictates they should be in my opinion.
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It is great to have LightSpeed aboard at LivingSocial and the company clearly has the capital it needs to continue expansion.
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LivingSocial is the company behind LivingSocial Deals and top Facebook applications, Visual Bookshelf and Pick Your Five. Today the company is launching its affiliate program as well as LivingSocial Deals in Chcago, Denver, Raleigh-Durham and San Diego. Over 1 million people are currently participating in Deals. LivingSocial's 80 million + registered users on Facebook and established social media expertise position it well to bring Deals to an ever increasing audience. Today, Deals is in a 13 cities and will be in dozens of cities by year end.
Notably, LivingSocial allows consumers to buy and redeem Deals from the convenience of their iPhone. After all, what good is a coupon at home?
The affiliate program will enable bloggers and web site owners to participate in LivingSocial's Deals and earn commissions while it increases reach for merchants.
LivingSocial Affiliate Program
Grotech Ventures is pleased to have backed the founders and team of LivingSocial from its early days and looks forward to the participation of the USVP team in the days ahead.
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The recent phenomena of the Pick Your 5 application on Facebook has generated a lot of press. The most interesting one to me was an article in the New York Times magazine which attempted to explain the popularity and value of the "Pick Your Five" and similiar products. The article didn't refer to LivingSocial or the product directly. Instead, the author noted the popularity of these "types" of products. 
The article attributed the popularity of these applications to their effectiveness as conversation starters. That was certainly my experience. When a long time friend would post a list of their first five cars, it prompted memories and conversation. All of which highlights the power and potential of Facebook as a closed environment of real people interacting with people they know in a direct way.
Some mainstream....
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Some more industry related....
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This annual event which recognizes the "Hottest" companies in a variety of categories, including "Hottest Venture Deal", "Hottest Management Team" and "Hottest Buzz" among others, will be held on June 24th this year. This is a fun, popular event which typically sells out.
Zenoss won "Hottest Venture Deal" last year and LivingSocial is nominated in the same category this year. Clarabridge is nominated in both the "Hottest Management Team" and "Hottest Buzz" category. Good luck to both of them.
Here's a link to the full list of nominees:
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Leonard Mlodinow: The Drunkard's Walk: How Randomness Rules Our Lives
Robert I. Sutton: The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn't
Ted Leonsis: The Business of Happiness: 6 Secrets to Extraordinary Success in Life and Work
