After Groupon, What's Next for Google?

Unless you’ve been living on a deserted island in the last 10 days, you’ve heard about the presumed $6 billion Google bid to buy Groupon, the leading daily offers player. Groupon walked away from the opportunity on Friday and will probably do an IPO in the next12-18 months (like Facebook). I gave a couple of media interviews last week on the phenomenon, one in the Montreal Gazette (here and here) and the other one in La Presse (in French), but I didn’t have the chance to blog about the story yet. Let’s fix that.

Why did Google want to buy Groupon and at such a huge valuation? For a couple of reasons.

1) Google wants to make sure they’re not seen as one-trick poney by Wall Street. Because they’re a public company, they need to show huge growth to meet expectations and expand into many ad vehicles. At their last quarterly call, they highlighted the success of their display ads business. Groupon is rumoured to have annual revenues of $2 billion and it certainly would have added interesting top-line revenues and great growth rates. Not sure Google would have liked the lower margins than what they have in search advertising, but it is what it is.

2) Google wanted to buy a local sales force. Groupon is present in more than 300 metropolitan markets and 35 countries and they’ve used their capital to scale the sales team and acquire regional players in Europe and Asia. Google has signaled many times in the past couple of years that they haven’t been satisfied with their large volume local sales channel partners (read Yellow Pages) and they’re probably wondering about having their own local sales force. Over the years, many rumors have surfaced about Google buying Yell and other large directory publishers. With the Groupon acquisition off, directory publishers stock has risen in value. According to The Street, “Three small-cap companies soared on Friday. Dex One Corporation ended nearly 49 percent higher, boosting its market cap to $335 million. It owns Yellow Pages and White pages directories. Meanwhile Supermedia, which pushes Superyellowpages.com and other local ads, soared 20 percent on a huge spike in volume. Its market cap is still just around $105 million. And Local.com, a business search engine and ad network, added 8.3 percent with a $90 million market cap.”

Both Supermedia and Dex One still have huge debts pushing the total cost of an acquisition higher (probably $3 billion +). Interestingly enough, Greg Sterling reported yesterday that Yell was thinking of selling Yellowbook, their US arm. Good timing!

Could a transaction to buy a directory publisher happen? Yes, it’s possible but I wouldn’t say it’s probable. There’s probably an underlying culture clash issue, trying to match Google with a Yellow Pages company. Google will probably be tempted to look at other options before including building their own sales force. After all, if Groupon did it, Google has all the capital it needs to create their own. It might take 12-24 months, but it would probably cost less than $3 to $6B required to make an acquisition. Could they look at ReachLocal? They had 641 salespeople as of Q2 2010 and a much smaller market cap / debt (under $1B). Maybe. One thing is sure. Google will make a strategic move in that field in the coming months.

SuperMedia to License SuperGuarantee Logo To Trusted Advertisers

From a SuperMedia press release (.pdf) this morning:

SuperMedia LLC recently launched ShieldPower, a new licensing program for SuperGuarantee businesses, making it even easier for consumers to spot the ‘Good Guys.’ Qualified businesses can now leverage the power of the SuperGuarantee Shield and use it on their Web sites, company vehicles, business cards, uniforms and more.

What it means; as most of my readers know, as opposed to most of the rest of the world, the Yellow Pages brand in the United States is in the public domain. In the 80’s and 90’s, it wasn’t surprising to see advertisers using the Walking Fingers logo and Yellow Pages brand on their truck and in their store. I like the idea that SuperMedia is now building a new trusted brand/logo that advertisers can use (really a seal of approval) given the commoditizing of the Yellow Pages logo in the US. Good move.

Superpages.com to Broadcast Coupons on Twitter

SuperMedia announced last Thursday a very interesting use of Twitter to broadcast coupons. From the release (.pdf):

Superpages.com today announced the launch of a new initiative on Twitter to drive more leads to its business listings. At no cost to the business owner, Superpages.com is distributing thousands of coupons it houses from its local business listings to 72 city-specific accounts on Twitter.

What it means: I really like this. I think this is a really neat idea to provide more visibility to Superpages.com merchants. I like the fact that they created “local” Twitter channels to make it more user relevant. That’s best practice definitely. I’m a bit disappointed that the coupons are free as I think they are leaving money on the table there. I believe coupons are perfect to monetize the real-time Web and given them away for free undermines future value. We have to assume then this is either a strategy to get merchants to claim their listings to be able to up-sell them later or a content strategy to improve user relevancy. In the context of a content strategy, I would also find third party local coupons and broadcast them in the Twitter feeds. Overall, this the beginning of a very interesting social media initiative at SuperMedia.

Some Thoughts on SuperMedia SME Positioning

As many of you know, Idearc rebranded itself this week as SuperMedia, exited chapter 11 protection and are back trading on the stock market (NASDAQ this time) under the SPMD symbol. For the occasion, they issued a very advertiser-focused press release with a few quotes from CEO Scott Klein.

“SuperMedia will serve as a “catalyst of commerce” for local businesses across the country” (…)

“I have great faith in the strength and promise of America’s small businesses,” Klein said. “Over these past two years the outstanding men and women that drive these local businesses have seen more than their fair share of heartache, instability and struggles.” Klein pointed to the more than 12 million small and medium businesses that are the heart and soul of local commerce and are in need of help. (…)

“On this day I want to make it crystal clear that SuperMedia is stepping up,” Klein said. “We are standing shoulder to shoulder with these good guys – these American entrepreneurs in the fight for their success, becoming their champion and an engine for their growth.” (…)

“We will not rest until every dry cleaner, roofer, auto repair shop and every other local business across America is given the opportunity to grow and thrive,” Klein said. “We are more than marketing. We are more than media. We are over, above and beyond media. We are SuperMedia.”

What it means: I absolutely love the “local merchant” positioning for a directory publisher. In the eyes of consumers, I think “local shopping” is currently perceived to be good for the economy, good for the environment and it’s a powerful communication angle. But it also made me think how much the directory industry has neglected the buyer side of the equation when building products and communicating in the last 10 years. In the 1990’s, print directories were dearly loved by consumers who saw them as very useful and friendly. There was an emotional connection. Unfortunately for the industry, it’s not as true today.

I understand the need for SuperMedia to talk about advertisers in the context of this press release because that’s what Wall Street is mostly interested in (i.e. revenues) but Yellow Pages publishers need to regain the heart of consumers as well. The old habits of focusing on sales and advertisers is not easy to break. Make no mistake. I’m not specifically picking on SuperMedia as they’ve been very active on this front with the Superguarantee program but I think the industry needs to step-up. I ask publishers: what are you doing for consumers today?. How are you helping them make better choices? Are you reducing the time it takes them to find the right merchant? Are you connecting them to the right options? Are they stretching their dollars because of you? If you can make people’s life easier, you have a good story to tell.

Did Superpages' Early Price Skimming Strategy Hurt Their Current Online Growth?

Online business highlights from [praized subtype=”small” pid=”2bc67fd4fc5e5f4c5d9bb21407657a4729″ type=”badge” dynamic=”true”]’s Q3 results conference call (from Seeking Alpha)

Revenues:

We reported year-to-date Internet revenue of 223 million, a 6.2% increase compared to the same period in 2007. we reported Internet revenue of 75 million in the third quarter, which is an 8.7% increase compared to the same period in 2007. With respect to Internet revenue, we indicated on our last call that we anticipated getting to double digit growth in the third quarter. With growth of about 9%, we didn’t quite get to that level as the transition from fixed-fee advertising to performance-based advertising products continued.

On the sales reorganization:

The new sales organization consists of 15 geographic regions plus a dedicated internet team.

On their online exec team:

Briggs Ferguson, a former [praized subtype=”small” pid=”c6512f599b9a1b7e6a250deaf060b9fdcf” type=”badge” dynamic=”true”] executive, who joined Idearc in April, continues as President of our Internet Business. Briggs’ focus is on executing Idearc’s complete digital strategy as rapidly as possible.

On product penetration:

In addition of the 800,000 clients we have, over 90% of the existing clients are print clients, less than one-fourth are Internet clients

On SEO successes:

In the search engine optimization arena we have seen a 32% increase in SEO traffic to Superpages.com translating to 11 million new page views. We have optimized business profiles for search engines an increase unique visitors by 213%

What it means: reading the whole transcript from Idearc’s Q3 results, I’m struck by the low growth percentage in their online business. According to the latest [praized subtype=”small” pid=”230b2717220fa8377d38b6934a47690022″ type=”badge” dynamic=”true”] Internet Advertising Revenue Report, online ad revenues in the first half of 2008 were up 15.2% versus the same period last year and search revenues were up 24%. If I remember correctly, Superpages had a price skimming strategy 5-7 years ago.  This means that they quickly grew their online revenues with high-priced online products (web sites, priority placement, etc.) but on a lower amount of customers (smaller penetration). I think that this strategy might have made them vulnerable to the increasing use of online advertising by SMEs. They now need to convince their online non-ads to take the plunge with them.  I think performance-based products serves that purpose but growth might not come as quickly as with fixed-fee products.