Archives

Categories

Acquiring customers will be tough in ‘local’

I’ve been on holiday for the last week getting in some good thinking time, and ‘local’ is an investment area that I keep coming back to.  This is not a new idea of course, but it may be one that will see a host of decent companies built over the next couple of years – and I mean in addition to the potential blockbusters from Groupon, Foursquare, Facebook Places, and so on.  With this thought in mind I was interested to read a guest post on Techcrunch over the weekend titled The Future of Local Commerce = Facebook + Foursquare + Yelp + Groupon.

The key points of the article are:

  • there is a lot of hype and potential in this area
  • the above companies are attracting very high valuations
  • but they are all competing intensely
  • and you will need a combination of social graph, reviews, checkins, and local deals to win

I think that analysis is spot on, and the article goes on to make the point that Facebook is in a better place to deliver all of these requirements because they are the only one that has all the elements listed in the fourth above, including (crucially) a local salesforce that can sell to the local advertisers to source the local deals.

For me having a local salesforce, or some other method of signing up local advertisers is the most interesting part.  Selling to a few small businesses is easy, but selling to them cost effectively at scale is a tough nut to crack (a lesson that has been learned many times over the years by companies targeting SMEs). The obvious idea of building a web based self service system is really hard to make work. Unless you have a massive brand then local advertisers simply won’t think of using you to advertise – these small local businesses are bombarded with tens of advertising offers a month making it impossible for all but the biggest companies te.g. Google) to be heard above the noise.

So, for all but the very largest companies a local salesforce is the way to go – a route that Groupon has taken very successfully from the outset and which Yelp adopted a couple of years back.

The good news for startups in Europe is that local sales forces are hard to build globally and so there will be multiple national and regional opportunities to build good companies.  This stands in contrast to the consumer facing side of local which is more global by nature. 

Enhanced by Zemanta
  • http://twitter.com/mulogy Matt Collins

    Great points. As you say, signing up local advertisers is tough. Even with a local salesforce, you still have the considerable challenge of making enough from each SMB to cover the cost of all those feet on the street. That doesn’t work for everyone. IMHO an important factor in the success of the Groupon model is how much money they can make through a single merchant. From what I’ve seen, startups in the ‘local’ space have often struggled because they simply didn’t make enough from each SMB.It’s interesting that people cite Facebook’s salesforce as an advantage. I suspect their salesforce hasn’t traditionally been the kind of on-the-ground salespeople that the likes of Groupon have been using to source city-by-city local deals. If Facebook want to go full-steam in the local deal direction, my guess is they’ll need to build-out a somewhat different sales organisation to complement the team they already have. I look forward to seeing how it all shakes out.

  • http://twitter.com/picturetheuk James Penman

    Hi Nic,

    Nice post. What do you think of the model behind this ‘local’ service: http://www.thebestof.co.uk/national/uk

    Franchise model and I think about 350 individuals have taken up the opp., each of which is part of a dedicated local sales force?

    James

  • http://www.theequitykicker.com brisbourne

    Thanks Matt – I didn’t go into it in my post because it was long enough already, but you are dead right that cost of customer acquisition compared with lifetime value is a key metric for offline sales, just as it is for online consumer businesses.

    And I share your reservations about the suitability of Facebook’s existing salesforce for recruiting small local advertisers. That said it will at least give them something to build from.

    Finally, it is interesting to think about the form these salesforces will take. I have seen call centre operations and true field sales models at play and both can work, but I suspect the trend will move to more call centre based sales backed up by the web, as the customers get more sophisticated.

  • http://twitter.com/JonathanLloyd Jonathan Lloyd

    It’s definitely tough, but also great fun. There’s a lot of hand holding involved and local business owners have seen many sales people walk through their door with a new pitch or offering.

    But local businesses on the high street are desperate for promotion and for the first time there’s now a change in the sales message; we’re not having to sell “advertising” – publishers and startups can now provide online marketing services, delivered through new media channels.

  • http://www.theequitykicker.com brisbourne

    That is encouraging to hear.

  • http://www.theequitykicker.com brisbourne

    Hi James – it looks like an interesting model – if you can get it to work. Getting the recruitment and ongoing incentives right will obviously be key. Do you know how they are getting on?

    The Alexa traffic rank is flat.

    Thanks for the pointer.

    Best,
    Nic

  • http://twitter.com/picturetheuk James Penman

    Their stats (caveat, caveat) but 350+ franchisees, 70,000 businesses across franchise network, 1.3uniques pcm and prices for franchise start from £6K and appear to be dependent on population. Only just started exploring it for a prototype local travel website we’ve built to use same model so not sure if above is accurate etc. The 70,000 businesses/350 franchisees makes sense @ 200 sales a pop. Still researching though! Thought it fitted with your post.

  • http://www.theequitykicker.com brisbourne

    Thanks James. We will take a look as well.

  • http://pikiquiz.com David Semeria

    Hi Nic, it’s been a while since I left a comment…

    I think there is a small fallacy in the original TC post. It assumes the only real way make headway in local is to create commercial ties with local businesses, hence the need for a local sales force. I think there will be many other ways to monetize local.

    A simple example would be the creation of large data asset which contains a strong localization component. Off the top of my head, this could entail, for example, collecting interesting feedback from customers (or potential customers) based on location. Eg “The service in Strabucks on [STREET] is terrible/excellent etc”. “Why can’t I buy a pint of milk on a Sunday morning in [LOCATION]?”.

    Sliced, diced and normalized, this information could be re-sold many times to large corporations, consultancies, MR firms etc – and it wouldn’t require much of a sales effort following initial traction (leverage customer pull).

    Just one quick example, but I think it demonstrates my point about there being more than one way to skin the local cat.

  • http://www.theequitykicker.com brisbourne

    Hi David – good to hear from you again :)

    The catch with business models based on selling data is that you need a large volume of data before you can provide a useful data service. For a UGC site (like Foursquare or Twitter) that probably means you need user numbers getting into the hundreds of millions, and most companies want a revenue model before they reach that size.

  • CRM

    CRM is essential for growing businesses, but it is important to carefully select your CRM partner. This blog article “Don’t Make a CRM Buying Mistake : 7 Points to Consider Before Selecting Your CRM Solution” has advice on selecting a CRM solution. » Commence CRM Blog

    http://www.commence.com/blog/index.php/2010/01/20/dont-make-a-crm-buying-mistake-7-points-to-consider-before-selecting-your-crm-solution/