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Why Media Companies Should Become More Like Merchants

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Welcome To The Cloud, Microsoft

Editor’s note: Should media sites become group buying sites as well? Guest author Dave Chase thinks so.  He was a marketing executive and general manager at Microsoft in the 90’s including starting Microsoft’s healthcare business. After leaving Microsoft, he has been involved in Internet startups including a social commerce company in the health sector that is in stealth.

If there’s one thing we’ve learned from the Internet it is that if a middleman doesn’t add enough value, their days are numbered.

Media companies may not have thought of themselves as middlemen—but that’s what they have been for marketers. When I used to buy advertising a decade or so ago, I felt it was my job to do what I could to get the media provider out of the middle between my company and the customers we desired. For example, we did a lot to drive a direct relationship including encouraging them to register with us so we could communicate with them directly later—first through e-mail, now it would be via a Facebook page or Twitter.

Back then, there was more than enough ad revenue for the media company to sustain their business—so much profit, in fact, that some companies got complacent. Just as railroad companies should have realized they were in the transportation business rather than the railroad business (and thus they missed the opportunity to get into the auto or air transportation business), media companies should recognize their business purpose is to connect their audience with products and services the audience desires. Without that business purpose, they can’t fulfill their editorial mission.

The traditional mission of a media business is to collect a loyal audience with high quality information, and let the advertisers worry about how to sell stuff. The media companies sold the audience.

Retailers historically aggregated consumers for product makers—for example, giving Proctor & Gamble a way to sell to people in Poughkeepsie . But most didn’t add a lot of value beyond offering consumers product selection and price. Retailers such as Best Buy have realized that and have started to add other value to the experience (e.g., the Geek Squad). Meanwhile, one of the retailers’ biggest costs has been advertising—circulars, broadcast advertising or something else.

Today, media companies on the Web aggregate consumers around specific interests and product niches (technology, cooking, travel, music, movies, sports, finance) much more efficiently. I believe today’s media companies will need to get directly involved in commerce to ensure a sustainable business model. The Times (UK) and Burda (Germany) are both reported to be realizing a substantial portion of their profits from direct commerce enabled from their websites selling 3rd party travel packages and other goods and services. Local media companies such as the Washington Post are either partnering with group-buying sites such as LivingSocial or rolling out their private label competition to Groupon and LivingSocial.

Some traditionalists may shudder at this blurring of church and state lines. However, the trusted relationships media companies and retailers historically aspired to have is more important than ever in this age of transparency. A company that shills for inferior products will be outed immediately. Conversely, a company that provides entertaining, inspiring and informative content and allows consumers to more easily find and complete a transaction for the best products and services is providing a great service to their readers.

The byproduct for traditional media businesses unwilling to make these moves is self-evident. It’s not hard to see this in action as you pick up your ever-shrinking newspaper that isn’t covering the topics it once did. In other words, their editorial mission is suffering due to sticking to their traditional ways.

Once again, traditional media run the risk of being slow to adapt. In some regards, smart media companies need to think more like retailers. That is, get directly involved in the transaction that they are only indirectly touching today. Rather than let the next eBay or craigslist form independently, they should get actively engaged in some of these new models:

  1. Private Sale business: Companies such as Gilt Groupe and Ruelala are experiencing phenomenal growth. These insider-ish member based businesses borrow from outlet-mall sample sales to create great value for the consumer. In a nutshell, they have a member list to which they send “flash sales.” Those sales are typically 72 hour in length, and the consumer gets access to curated merchandise at 50-75% off of retail. Yet another example is private sale pioneer, France-based Ventee-privee, which is approaching $1B in annual sales and like the others is highly profitable.
  2. Group Buys: Groupon and LivingSocial are seeing tremendous growth tapping people’s social networks to present consumers with great deals that still make sense for merchants. Group-buying sites have also gained investor interest because of their compelling economics as you can see for Groupon and LivingSocial.

While these trends can span both local and national media properties, I believe that the private sale business is a great fit for a national publication. National publications tend to be focused on a particular topic area whether they are gadget blogs, design site, or parenting magazine. Here are a few examples:

  • Wouldn’t Zulily (a private sale site geared toward young children’s clothing) bolted on to Parents Magazine grow far more quickly and still be a good fit with Parents Magazine’s audience mission?
  • Vogue has partnered with Gilt Groupe to “shop the issue” at http://vogue.gilt.com/.
  • Daily Candy has launched their own Sample Sale.

Meanwhile, local media is a natural fit for group buys—the group-buying phenomenon is largely local. Already we have seen Groupon work with Metromix and LivingSocial partnering with the Washington Post. Group-buying programs can grow much faster by piggybacking the daily or regular habit most consumers already have with various local news properties.

National media will have to be more careful not to cross journalistic lines. It will be relatively easier for local media as most of the group-buying categories don’t directly relate to their editorial focus with the exception of special sections such as travel. The value of the local media isn’t terribly different than the traditional model – i.e., aggregating a large, local audience. However, they are taking the additional step of closing the transaction.

Those of us who have sold media understand how successful private sale and group-buying programs can avoid the common scenario of trying to explain to an advertiser that the media property achieved the agreed upon objective (i.e., exposing consumers to the merchant’s offerings) but it may have been the merchant who didn’t do their end of the bargain very effectively. These social commerce programs can avoid a common problem with ads – the lack of measurability, and the inevitable disagreements between the merchant and the publisher over the effectiveness of the ads.

Some believe this model of commerce will die out as the economy recovers. I disagree. Product purveyors have always had extra inventory they need to unload. Further, the private sale approach allows them to do it in a way that they don’t perceive damages their brand even if they have premium positioning.

Likewise, in the local arena where popular group-buying categories such as restaurants and service providers (spas, dentists, etc.) are having great success, those organizations previously employed the “spray and pray” method of advertising with little idea whether it was working or not. With group-buying, they not only get a directly measurable transaction closed, they get what amounts to free advertising even for people who don’t purchase, since the group-buying sites amount to a quasi city guide. Groupon states in their marketing that 9 out of 10 businesses who have used them state that Groupon customers are among their “new regulars”. That puts this model in the no-brainer category for many local media.

Photo credit: Flickr/ Tilo Driessen

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