Once again, it looks as if Google is taking a giant leap into location-based services with its recent acquisition of The Dealmap. Is this deal a signal that LBS market viability may be tied to the social shopping market? The market is potentially huge, with two big players and a third, Google, quickly developing. But is this the market that will propel LBS to the next level? One analyst says yes…and no.
Technology giant Google is once more trying to corner more of the social shopping market by buying The Dealmap, a 15-month-old company that offers its own location-based daily deal service.
Menlo Park, Calif.-based The Dealmap collects data from hundreds of sources and arranges deals by location, on its website and a smartphone application. The start-up, founded last year, has 15 employees and 2 million users, according to published reports.
Google tried to buy Groupon for as much as $6 billion last year, and decided to launch its own service, Google Offers, in Portland. Google’s service has since expanded to New York and the San Francisco Bay Area.
Google has made many moves into the location business in the last two years. It is trying to grab a large share of the European traffic market by offering real-time services in 13 European companies. Google shook up the navigation market with free navigation service for Android phones in 2009.
At least one analyst said he was intrigued by the acquisition, of which financial details were not disclosed. Mike Dobson, TeleMapics president, said that The Dealmap acts as a deal aggregator and cross-channel distributor for national in-store deals from brand retailers, restaurant chains, and other businesses; local daily deals (from Groupon, Living Social, and more than 200 other sources); and what The Dealmap calls “store window” deals from individual local businesses.
In a recent presentation that The Dealmap made at the Kelsey Deal3D Conference, the company claimed to have grown in its first year to 2 million-plus cross-channel users, including more than 1 million mobile users, said Dobson, who authors a location blog. The volume of monthly deal searches on its network was more than 75 million and the monthly network reach was estimated at 85 million, he said.
The Dealmap and others (Borrell Associates, Needham and Company, and Groupon) have predicted that the projected size of the local daily deal market will be sized at $10 billion by 2015, while the online local ad revenue will be $32 billion by 2013, Dobson said. “The Dealmap claims that its deals provide more than $10 million in savings each day, although it is less clear what earnings it creates in the way of margin/profit for distributors, such as, well, Dealmap,” he said.
Dobson said that the “deal supplier” market appears to be dominated by top sites. Eighty percent of the local deal inventory nationwide is dominated by 20 sources, 69 percent by 10 sources, and 40 percent by two sources, Groupon and Living Social, he said. “The Dealmap claims that its daily ad inventory is supplied at a modest 6.25 deals per source, while half the deal supply sources offer only one-to-two deals a day,” he said.
“Perhaps more disconcerting is the fact that 69 percent of deal suppliers have a presence in from two to nine markets, while 19 percent cover only a single market. Only 4 percent of The Dealmap’s suppliers have a national footprint, which the company defines as 25 or more markets, Dobson said. “While this could suggest that the deal market is inherently local, I think it suggests that local suppliers add the ‘long tail’ that is appended in local markets to the offerings of Groupon and Living Social. In other words, the market appears to be close to a duopoly at a national scope, with numerous smaller players operating as regional and local suppliers. My conclusion is that the market for local deals from individual local suppliers is quite small, and that the major force of deals in all markets are national chains who wish to present deals to draw local users to their shops.”
Dobson says the reason he makes this distinction is that it does not appear likely that “deal-based advertising” is going to be the replacement for local newspaper advertising, or a real-time Yellow pages, at least not as currently configured.
“The Dealmap indicates that in a sample taken from Chicago for one day of deals, the inventory from the two leading providers was split one-quarter each for fitness spas and shopping, while attractions and dining evenly split the last quarter of the pie,” Dobson said. “When all deal suppliers were added, salons and services deals added 10 percent each to the mix, while dental deals (3 percent) and hotel deals (5 percent) rounded out the categories. Who knew that people looking for social shopping deals were looking for an athletic workout and liked to meet in spas, followed by a good meal and a visit to an attraction?”
According to The Dealmap, more than 50 percent of deals searched for nationwide by consumers are related to dining, followed by shopping at 20 percent, while attractions, bars, spas, travel and “things to do” to ranked in the single digits. On mobile devices the search profile is somewhat different, with dining at 40 percent, shopping at 30 percent, spas and travel each at 12 percent, “things to do” at 4 percent (a 5-percent loss compared to deal-search in general), and bars at a measly 1 percent (a 3-percent drop compared to deal-search in general), Dobson said.
“I am not sure how others perceive the message that can be found in the numbers above, but I think it might be hard to find a long-term growth business here. Google acquired The Dealmap because Google needs to buttress its local advertising empire, but clearly this is a small-potatoes business,” Dobson said. “Yes, I understand that Groupon walked away from a $6-billion-dollar offer from Google, but I suspect that they already regret their bristliness during the negotiations. I guess this shows that just because you can market deals, does not mean that you know how to negotiate one for yourself.”
What’s the Big Deal for LBS?
Dobson said that the big deal may be for the LBS industry. “It appears to me that the concept of ‘location’ is in the process of occupying its rightful place in a variety of industries that are clearly location-centric, and were location-centric before any of us thought of using the term location-based services to describe those business services that had a location component,” he said. “Perhaps the only thing that has changed for these industries is that the consumerization of GPS and the inclusion of its functionality in phones, laptops, PNDs, and other navigation devices have allowed these businesses to pinpoint the location of consumers and provide relevant services to mobile users.”
While The Dealmap certainly fits within Dobson’s notion of LBS, he suspects that the company sees itself in the deal-distribution business and has forward integrated into location services to expand its deal-distribution capacity. “Google almost certainly did not acquire The Dealmap because the company had a new, unique, and proprietary location technology. Instead, they acquired The Dealmap for the company’s distribution strength (its distribution network and deal-distribution applications) and their knowledge of how Groupon and Living Social operate,” he said. “It seems to me that the one trend that continues in LBS is that service businesses require strong distribution channels and few companies in this space have capabilities in this respect. For this reason, the action in LBS will continue to be acquisitions by companies who already have the distribution, but need the know-how that will allow them to leverage location as a method of increasing their distribution capability. In short, ours is a market segment in which companies need to innovate, out-perform, and pray that they get noticed by the industry leaders in other market segments.”
There are no potential Google or Facebook success stories in our midst, Dobson said “Our task is to build location engines, use them to solve common but ubiquitous problems involving location — and hope that our efforts get us to the finish line before anyone else,” he said.