It turns out Groupon is indeed worth at least $6 billion. But Leo Laporte and Jeff Jarvis “don’t get it” (they think it’s because they are men and don’t understand shopping). Paul Kedrosky insists Groupon cannot scale. John Battelle gets it, but he covers too much ground IMHO. Let me simplify the argument: Groupon changes everything.In the early – and oh so bubblelicious – days of the World Wide Web we were told that “the Internet changes everything.” Well, it didn’t. It certainly didn’t change the major funding source for information, news, and entertainment, i.e., advertising.
According to the Advertising Age timeline of main events in American advertising, 1704 saw the first ad in a newspaper. The first radio commercial aired in 1922 and in 1938 radio surpassed magazines as the main source of advertising revenues. According to Wikipedia, the first TV ad was shown in 1941. The Web didn’t change how news and entertainment are supported; it reinforced a century plus-old and very entrenched business model.
We have continued the obsession with counting heads (circulation numbers for newspapers and magazines, listeners and viewers for radio and TV), only we now started to count “Internet eyeballs.” Google, the most successful company so far in the Web era, provides a service based on its key innovation (relevant and comprehensive information retrieval) for free – and accumulated most eyeballs in the process – because it can support it profitably with a series of other unique innovations in advertising sales. Would-be Googles, notably Facebook and Twitter, are following the same model and are expected to “monetize” their eyeball collections through advertising and advertising-related services.
Of course, Web advertising is different from newspaper or TV advertising in its ability to make a tighter connection between an ad and its target audience and better measuring its success. But developing and disseminating information is still largely supported by advertising which in itself has not changed. It consists of producing an advertisement that – it is hoped – will reach the target audience and will make it do something such as buying a product. Hope, it turns out, is not just a recent political slogan, but also the engine that has driven the marketing of products and services of millions of enterprises, big and small, worldwide, for about two centuries. And the ever-multiplying forms of mass media – from newspapers to the Web – have been supported largely by this hope industry.
Groupon, “the fastest growing company ever,” has taken out hope from advertising and instead delivered certainty. Seller and buyer find each other and complete a transaction before any product or service is consumed (and often, before it is even produced). Groupon may or may not continue to grow, given the growing competition and the growing interest by large players like Google and Amazon, but it is the first Web company to re-invent business. This goes beyond advertising because uncertainty is at the heart of many operational dimensions of any business. Knowing in advance how much you need to produce or how many people you will need at a certain point in the future is business nirvana.
Is it possible to scale this new way to do business beyond local small businesses? I think it’s possible. I think we will see “crowdbuying” embraced by large consumer businesses. Why should McDonald spend millions on printing coupons and then hope for results when it could do a national or regional or local campaign for a specific day or even a specific hour and know in advance exactly what to expect and even collect payment before customers set foot in the restaurant? Why should Walmart and Target print weekly advertising circulars with their guesses as to what customers want and at what discount when they can find it out directly from them? Why shouldn’t Dell re-discover its glory days when it was the first (and for a long while, only) PC manufacture to build a computer only after the customer order was received, by replacing advertising with crowdbuying?
Would it be possible to apply the new model to business-to-business transactions? why not? Would it be possible to extend what Groupon started by moving from crowdbuying to crowdauction (allowing for the price to vary based on the magnitude of the response)? Why not? Would it be possible to use smart phones which soon will serve as our wallets (and barcode readers, etc.) to make an on-the-fly connection between buyers and sellers by broadcasting to potential buyers who are within a half mile radius of your business and encourage them to bid together for whatever you offer? Why not?
If all of this, and more, becomes how we buy and sell, there will be no advertising industry as we know it today and no more paying for developing and disseminating information and entertainment with advertising.