Google Offers 2 Weeks On – The Local Vantage Point

Not being well versed in the deals arena I wanted to better understand Google’s baby steps with their Offers product. I turned to a number of respected folks, that have more experience in the field than I to get their sense of Google’s progress in their newest local effort. Here is the discussion thread from earlier in the week where Greg SterlingJim MoranSebastien ProvencherDavid MihmSol OrwellRocky Argawal and Andrew Shotland gave their impressions of Google’s efforts to date based on these sales numbers in Portland.

Google Offer’s Beta in Portland started on June 1 and there have been 12 deals through the first two weeks of June. Google seems to be serious in their committment to the market. They are putting feet on the ground in Portland and elsewhere, including NYC. They have started hiring sales staff for a direct sales team for Offers and other local endeavors. But it would seem that getting from here to there (wherever there is) is no small task.

Here is a summary of the deals to date and projected dollar amount generated for Google for the past 2 weeks:

Date Co./URL Deal % off Purchase 

Window

Avail. Sold % Sold Total Dollar Value Google’s Proj. Take @50%
6/1 Floyd’s Coffee $3 for $10 work of food 70% 15 hrs 2000 1709 85% $5127 $2563
6/2 Uptown Billiards $10 for $200 worth of Pool 50% 15 hrs 500 95 19% $950 $475
6/3 Karam Lebansese $8 for $16 of Lebanese Food 50% 15 hrs 500 500 100% $4000 $2000
6/4 Celebrity Tan $10 for $39 Spray Tan 74% 39 hrs NA 157 NA $1570 $785
6/6 Portland Pedicab $45 for a $90 3 brewery pub tour 50% 23 hrs 700 26 4% $1170 $585
6/7 Le Bistro Montage $4 for $10 of Cajun-style Brunch 60% 23 hrs 2000 706 39% $2824 $1412
6/8 Mt. Tabor Dental $59 for a $421 dental package 85% 23 hrs 300 51 17% $3009 $1504
6/9 Malu Day Spa $30 for a $75 spa package 60% 23 hrs 600 39 7% $1170 $585
6/10 Mississippi Studios & Bar Bar $7 for $20 towards food, drinks or an advance show ticket 65% 23 hrs 5000 1189 24% $8323 $4161
6/11 Fulcrum Fitness $45 for one month of unlimited boot camp sessions f($254 value) 82% 47 hrs 500 83 17% $3735 $1867
6/13 Ground Kontrol Classic Arcade $1 for admission to Free Play Night (a $5 value) plus a $5 food and drinks credit 90% 23 Hrs 750 750 100% $750 $375
6/14 il Piatto $15 for $30 worth of locally inspired Italian food and drinks (deal ends at 3 PM) 50% 33 Hrs 1500 504 50% $7650 $10175

3780

Totals 11350 5821 51% $40278 $20139 at 50% 

$14097 at 35%

Avg 946 485 $3356 $1678

Is this first two weeks a success? Is it an abject failure? Does it just point out how far Google has to go before they are successful? Here’s what Greg SterlingJim MoranSebastien ProvencherDavid MihmSol OrwellRocky Argawal and Andrew Shotland had to say:

Greg Sterling: My quick take is that most of these deals underperformed re the % sold. Maybe Jim has a sense of how these deals are performing relative to other competitive vendors.

It’s difficult to evaluate whether they were successful for the businesses themselves without talking to those involved.

It was probably a big failure for Portland Pedicab. But Malu day spa and Uptown Billiards might have seen some success if these are new customers who a) spent more than the face value of the deal or b) will return.

The Lebanese restaurant is the only one to completely sell out (note: the discussion occurred prior to 6/13). My guess is that a chunk of the buyers were existing customers who liked the place. But that’s speculation of course.

James Moran: – I don’t think Google is taking 50%. I’m not sure where, but I think I heard 35%. Could be wrong.
– Per Greg, one apples to apples comparison:

LivingSocial ran with Uptown Billiards Feb 2011 and sold $3,274 in Gross Revenue vs Google’s $950 [for the exact same business in Portland] IE LivingSocial sold 3.5X as much as Google Offers with the same vendor

– One big UI point of feedback is, many deal sites display a cap to the consumer to provide a sense of scarcity. However, I would disagree with Google’s implementation of showing caps in the high hundreds or thousands of deals.

Sebastien Provencherr: My two-cents: Except for a couple of merchants, sales results seem extremely low. I read somewhere that Google is taking a very small share of the total revenue, can’t find the source but I tweeted it a few weeks ago. Maybe 25%? Maybe less?

David Mihm: Initial reaction: why is Google even bothering to get into this space? Did someone say “Oh, daily deals are hot in SV right now & if we don’t get in our share price will suffer?”

It looks like their average cut is $1410. That seems shockingly low. Think of how much touch-and-feel they need to exhort the business owner to run a deal, coordinate the ad copy, etc. For a one-time shot.

Why not do a better job of marketing Boost to 14 businesses a day at $10/month? That would be the exact same revenue over the course of a year.

For all you non-Portlanders out there, today’s Offer–Ground Kontrol–is a very popular Portland business that I cannot imagine needed to drive any foot traffic. I wouldn’t be surprised if Google was eating 100% of today’s deal just to be associated with it. It’s kind of like Powell’s in terms of its iconic presence in the community.

Rocky Agrawal: Their sellthrough rates are so embarrassingly low that I’d stop publishing the cap — thought I wouldn’t be surprised if today’s sold out.

I agree with David that Google is likely eating the difference on the arcade.

I’ve been tracking since launch and Groupon is 5x Google revenue in PDX. (median/deal)

And I still strongly believe that for Floyd’s ~1500 were purchased by competitors/analysts willing to spend $3 to test it out. Footfalls first day couldn’t have been more than 20. (They had a notepad where they were writing down voucher numbers.)

Greg Sterling: Wonder if Google will turn around after a bunch of months and try to buy a smaller player but one with a sales force — an adility for example

Sol Orwelll: (formerly Ahmed Farooq) Hadn’t thought about competitors buying Floyd’s – makes sense.

Question is, how heavily is G promoting this (both on supply and demand site)? It took them a while to gear up on the constant promotion on Chrome, and it is doing well for them. HotPot (as Mike has documented) is exploding. Once they really turn it on in deals, I can see them solving the demand-side problem.

Then again, I can see them fixing the supply side by just buying out a B player for their sales process (as Greg mentioned).

Per Mike’s original question, while the numbers are far from impressive, with G’s reach and bank account, if they are willing to keep at it, I really don’t see why they would fail (consumers have no loyalty to Groupon or anyone else).

Lastly – isn’t this also a bit of a Trojan horse to promote Google Checkout?

David: Everywhere I turn these days is Google offers. They’re advertising the hell out of the internet based on IP geotargeting. I know it’s only been out a few weeks, but…

Greg: Good point about Checkout/Wallet. But I don’t believe Wallet is entirely dependent on Google Offers. There can be a range of offer types and third party offer ads that would create additional incentives to use Wallet.

Google can do the consumer side, they’re more challenged on the sales side. They would much rather outsource if they could.

I have difficulty imagining they’ve got the stomach to build a several thousand person sales force for this. Per Andrew Mason, 4K of 8K Groupon employees are in sales.

Rocky: I can’t avoid the IP geotargeted ads for Offers here.

There will be a TC post dropping within the next two hours that should spark a bit of discussion. :) (See Rocky’s deal series on TechCrunch here)

Sol: Ah – as a Canadian, I still only see Groupon/LS/DealFind backfilling the hell out of Adsense.

As for sales side – yep, makes more sense for them to acquire. But again, with their muscle + bank account + other benefits it gives them, I just see it as a matter of trying till they get it right.

David: Re Checkout:

As I wrote back in the fall towards the bottom of this post – http://www.davidmihm.com/blog/google/groupon/ …3% of $6 Billion is not a small number…even on existing transactions if the customers never use Checkout again.

Andrew Shotland: While their inability to sell these out fast is kind of embarrassing for the great GOOG and the economics look weak, given that these are early days for GOOG Offers, it’s hard to say how relevant these metrics are to the long term prospects for the service. I am kind of curious how the other players in the market have responded, or not responded, to GOOG’s entry?

James, are you seeing any data that suggests that GOOG’s entry has slowed or changed redemption for any other service? Did the others change their offers when GOOGOff (TM) came out to try to blunt its entry or did Groupon put up weak offers – kind of like scheduling a documentary on Local Search against American Idol?

I would expect their to be huge overlap between GOOGOFF subscribers and the other major services. How many deals can you deal with in your inbox every day? Did the entry of GOOGOFF create dealmail overload and change redemption rates for the other services?

Right now I think I get Facebook, Groupon & LivingSocial, and I barely look at them. If only there were a service that aggregated all of these in one place :)

Rocky: Google’s Offers have been remarkably weak. I expected more of them to be like today’s.

Pedicab rides? The contestants on The Apprentice generated more revenue from pedicab tours—$1,270 vs. $1,170.

Andrew: True, but I am guessing the Apprentice’s CPA was much higher than GOOG’s :)

Rocky: I’ve found it interesting that LivingSocial is competing aggressively for “portland offers” keyword, but groupon is not. wonder what that’s about.

David: it’s possible Groupon thinks they have gotten all the low-hanging deal fruit here in PDX. I hardly hear them on Pandora anymore either.

Greg: Agree. If they’re genuinely in this for the long haul and have multiple objectives tied to the success of Offers I suspect they’ll need to acquire a sales force.

Mike: You all did see their job postings for Offers? http://blumenthals.com/blog/2011/06/07/google-hiring-sales-staff-in-seattle-for-large-scale-smb-acquisition/ So at least some of this is occurring now in-house.

Greg: Had not. Will be interesting to see how far they go with this.

 

So what do you all think? Will Google build out their own sales force successfully? With enough time and money will they achieve the scale they need or will deal fatigue set in prior to their reaching their goals? What is your takeaway from the Portland efforts?

Please consider leaving a comment as your input will help me (& everyone else) better understand and learn about local.
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8 thoughts on “Google Offers 2 Weeks On – The Local Vantage Point”

  1. From the perspective of a new business for google, the entire thing is early early early. Its a great way for a business to get a feel for how things work, adjust, tweak, and improve, and keep going. When the daily deals from Groupon and LivingSocial first started, they were new innovative, different…but they didn’t get this week by week scrutiny at their very onset.

    Several things are clear: Its been an incredible phenomena; its spawned many many many imitators, including most recently Google. The leaders are innovating. At some point it may peak as with all businesses. The business cycle from innovation to peak will be far more rapid than older businesses…the web moves much faster.

    I think it will be interesting to see what happens. Frankly Google has this astounding ability to penetrate the market far better than anyone else.

    All in all though, two weeks into an initial single test in one metro area is way way to early to start passing judgement, especially as with most businesses they’ll probably tweak it time and time again based on their experiences and learning curve.

  2. David’s initial reaction of wonderment over WHY Google decided to do this interests me, too. Google is spreading their butter over so many loaves of bread, while existent products remain so faulty. Can they be into everything? Every pie? Time will tell with Offers.

  3. @Earl

    Certainly they are under a microscope that the current leaders avoided but that is the price of being Google. And, as Sol pointed out, if Google commits the resources they can do what they need to do to be a player… just like reviews… tweaking they will also do…they are tweaking as they go as today they ran the deal for an extra 9 hrs compared to the previous ones…

    @Miriam
    I read an interesting quote the other day: “Google is the new Sony”… meaning that they are trying to be in everything but not doing anything particularly well… I do not think I agree with that.. I think that there is a lot of innovation left in Google…

    They are getting into the deal space because it gives them a reason to put the necessary feet on the ground. As you can read in their job descriptions, they position Offers as but one of a range of local offerings.

    I am not even sure that the deal space will remain viable but local advertising will. They have set their sites on local advertising… whether it is deals or something else they seem determined to be a player.

  4. I agree, I’m not sure about viability of the space. But with its massive distribution, ownership of Android platform and its Maps driving a lot of local activity, they definitely will be a very important player to watch.

  5. @Rocky

    It could also be that the move into the Deals space is largely defensive and will ultimately be used to show the SMB that there are viable and less risky alternatives to customer acquisition.

    Their move into the space will remove some oxygen from the room regardless, cut off both profitability and maneuvering room for their competitors while they (G) are putting together a pallet of additional products and positioning themselves long haul as the player in the local space…

  6. Last week I read an investment article on Marketwatch.com discussing the Groupon IPO and how the company is a truly bad investment. The basic points were very simple:

    1. Their growth in customers and email subscribers has been matched with an outsized net loss (they corrected for management’s lenient use of accounting principles)
    2. They rely completely upon the local business to provide a descent experience to the coupon buyer
    3. The math does not add up for the local business advertiser (basically giving their service/ product away)
    4. If the idea is profitable, big if it is a zero sum game, there is nothing stopping additional competition from entering the market and undercutting the margins
    5. This type of business lends itself well to do-it yourself local companies (similar to the thousands of local mailer companies)

    Google had a multi-billion dollar offer to Groupon rejected. I am guessing there are some upper management grudges being played out here. I have posted many times that Google is on a downward trend due to their need to continually grow revenue. This is a perfect example.

    So what if they do succeed in penetrating the market, I can already foresee local merchants being willing to talk to their sales reps not to sign-up for deals but to finally talk to a real person about why their local listing keeps getting rejected. Once the margins do come down, as a result of a saturated competitive market, investors will be outraged with the low margins.

    This experiment will be a failure, if it is not already. Groupon has proved that point.

  7. To tell you guys the truth, I’m amazed from the figures in Portland!
    “Even a 10,000 miles journey will start with a small 1st step”
    I think that we all need to remember that this is Google we are talking about here & not some niche Daily Deals new player.

    $1400 a biz? multiple it by couple of millions in the US alone? couple of deals a month? sounds tasty! very tasty!

    It’s quite obvious that Google changed (is changing..) it approach for what is Local. they will have the necessary sales team & on line platforms to dive deeply in certain Local arena. If they have the willing, budget isn’t an issue of course.

    Offers can be only 1 thing from the package that Google can offer to a SMB. They will increase awareness for new features in Places (free & paid), Adwords deals, Checkout, LBS (Latitude), new City Pages stuff, etc..
    Once a platform is set (sales team & on line) everything is doable. Like what they are doing now- inserting Offers on a PPC ads. or having a Local sales team that will be able to market to SMBs many Google products.

    Yes, it’ll be rocky way, BUT if there is a need from the SMBs & Google will be smart enough to build a platform that is easy to work with & mange- they will get what they want.

    B/c they are increasing friction with the field now, they will have to be smart enough to build a ‘stupid & simple’ systems & methods to work with. even Adwords is too complicated for the SMB owner to manage.

    Again, i think, it’s all about market demand, budgets, simplicity & “air in Google lungs”.

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