Acquiring customers will be tough in ‘local’

By November 1, 2010 11 Comments

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. 

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