Maybe you haven’t noticed, but media companies have changed their strategy of charging for advertising. If it continues, the business model for media might change forever.
In short, the allure of group deals has allowed local businesses to offload the risk of advertising onto the media company. Advertising has become “free,” and the media company gets paid only when a sale is made. It’s a wet dream for a lot of newspapers in the automotive and real estate categories: Imagine getting a 10% commission when a dealership sold a $25,000 car, a 1% commission when an agent sold a $250,000 house.
If this continues – and I bet it will for quite some time – it will transform media companies into marketing partners. The very sound of that gives the average ad-sales person the fantods.
I have no doubt this trend will accelerate in 2010 as more media companies get sucked into advertising for free, betting they’ll make their money on the sale. The numbers continue to spiral skyward. In fact, in 2010, somewhere in the neighborhood of 37 billion coupons were made available online (“dropped” to use the old terminology). This is a 54% increase from the 24 billion we tracked in 2009. That’s huge.
The face value of those coupons also saw an uptick – about 21% by our estimates. The face value of an online coupon went from $2.80 to $3.40. When you consider all the Groupon-like two-for-one deals out there for $25 or even $50 apiece, that per-coupon average may seem way off. But Groupon represents only about 10% of last year’s $1 billion online couponing marketplace. Still, online coupons hold a face value that’s twice that of the average coupon. For coupons that come in the mail or packaged in your Sunday newspaper, the face value is slightly more than $1.50.
So the bandwagon rolls on. Everybody’s getting in the two-for-one, half-price group deals. In the past few days, Local.com announced the acquisition of a group-deals program, and Triton Media announced a partnership with Deal Current to offer something to radio stations. I typed in “group deals” on Google News just now and got a few dozen results – from an airport shuttle company launching a deals program on its own website to a Kansas University architecture alum bringing his self-developed “deals” program to three Kansas cities.
Group deals, half-price and two-for-one offers are here to stay. It’s a distinct shift of risk from the advertiser to the media company that I doubt will be reversed. Advertisers are less willing to write a check for a flight of commercials or a double-truck ad in the newspaper, hoping it will drive sales. They seem more willing to give up a portion of the sale to the media company – meaning they’re not willing to gamble on potential sales anymore.
They don’t represent the death of advertising as we know it, but it certainly feels like the advent of a new marketing norm.