Many of you probably saw the announcement yesterday that Groupon had partnered with McClatchy to distribute unique daily deals through McClatchy sites nationwide According to the release:
Groupon announced today it has signed a national agreement with The McClatchy Company to distribute exclusive content to McClatchy’s websites located in 28 U.S. markets . . .
Visitors to McClatchy websites will see exclusive Groupon deals not available on Groupon.com. Groupon will broker each deal with its customary quality, editorial style and high standards of service. Daily Groupon deals will launch first in the Sacramento and Kansas City regions with other sites following over the next few months.
It will take a few months to roll out on the initial sites apparently and, if all goes well, to the entirety of the McClatchy newspaper network. Characterized as a “win win,” I’m not quite convinced. (McClatchy’s Sacramento Bee offers its own relatively basic coverage of the partnership here.)
Some newspapers have begun to offer daily deals with white label partners such as Analog Analytics. LivingSocial has a deal with the WashingtonPost company and, in my area, the lesser-known TownHog is the partner for daily deals from the Hearst-owned SF Chronicle/SF Gate.
Eventually, it’s safe to say, that all major dailies will be compelled to offer some version of this daily deal functionality. Consumers, so far, love the deals and SMBs seem to report high satisfaction levels with group buying to date. The question is: who is the right partner and how is the service presented and branded?
Groupon has the advantage of the in-market sales presence and a backlog of offers in the pipeline. McClatchy would have trouble matching that potentially if it were to sell the deals themselves.Then there’s the conflict with its other ad models. The “pay for customers not clicks” proposition of Groupon and its rivals conflicts with other forms of marketing that McClatchy is selling to SMBs in local markets, including SEM.
In the relationship Groupon will apparently “own” the advertiser, while McClatchy will have the relationship with the reader-consumer. Collectively US newspaper sites reach almost 60% of the online audience according to comScore. Groupon will get additional reach in McClatchy markets and presumably some additional branding and visibility. In a short period of time, however, Groupon won’t need newspapers.
According to McClatchy’s Chris Hendricks from the podium of the last Borrell show in the Fall, 16% of the company’s revenues are from “interactive.” This Groupon relationship will provide some additional revenue — though how much is unclear — to the publisher.
I was told by Groupon President Rob Solomon that the deal provider would do between $300 and $400 million this year in gross revenue. Groupon takes half or nearly half of the aggressive discount it negotiates with the SMB. Presumably McClatchy gets a slice of Groupon’s take.
Working with Groupon directly offers more revenue than working with an aggregator perhaps. And, ironically, the deal will help “defend” the site against Groupon itself and rivals to some degree. It’s a little bit of the “keep your friends close and your enemies closer” way of thinking.
The deal “makes sense” for both parties. In my mind it’s a kind of a smart “stop-gap” in the near term. However it’s doubtful that McClatchy is building any long-term value here for itself.
Do you disagree?
July 2nd, 2010 at 11:05 pm
Best I can tell, the “exclusive deals” will use GroupOn branding and editorial voice to the consumer. GroupOn owns the advertiser, and (I would argue) really owns the branded consumer position. The newspaper owns the distribution to the consumer for that deal.
So, the local media channel gives up the control of the advertiser AND allows the partner to build their brand and style with the consumer. I’m sorry, but that is one VERY lopsided definition of a win-win.
Perhaps it is a smart “easy opportunistic” model, but if there’s nothing else behind the plan, it’s no way to build a scalable or secure foundation for growth.
my two cents
July 3rd, 2010 at 12:40 am
Perry I agree. What I was trying to say is that there’s a logic to working in this way in the short term but there’s little value there for McClatchy in the medium and long term.
July 3rd, 2010 at 1:37 am
Greg, I agree with Perry. For McClatchy to launch this themselves would seem to be a much better option. There is not a lot of brand equity in the Groupon name, and the newspapers have high-traffic websites and feet on the street with their salesforce, as well as relationships with hundreds of advertisers. And they would get the whole pie, not a slice of a slice.
July 3rd, 2010 at 3:16 pm
Rick: I agree but doing that would be more of a challenge for McClatchy and others. Tough in the near term, more value over time. Like AdSense revenue this is “easy money” for McClatchy — but it’s short-term thinking.
July 3rd, 2010 at 5:33 pm
Did anyone here talk to McClatchy or Hendricks about this or are you speculating off limited knowledge? My read is nothing prevents McClatchy from partnering AND doing this and more in the Deal of the Day space on their own.
I would do both as long as the deal term with Groupon truly was win-win. That, of course, is the rub. I don’t know the deal terms and neither does anyone here. From what I have seen and heard though McClatchy seems to know what they are doing.
July 3rd, 2010 at 5:50 pm
I did not interview Hendricks on this otherwise you would have seen evidence of that in the post above. I’m speculating. I spoke to Groupon earlier in the week but not specifically about this deal.
Newspapers have been unable to execute successfully in many areas on the internet, especially when it comes to building things in house. This might be different because the key asset is the sales channel.
But given the history of newspapers and their challenges online I don’t think the speculation is that far off.
July 3rd, 2010 at 5:53 pm
I’ve got a request out to interview Hendricks. Stay tuned.
July 4th, 2010 at 4:19 am
If this marriage ever ends in divorce, McClatchey has created one helluva competing brand in its own back yard. (Ex: CareerBuilder) I just don’t understand this one. We looked at two similar deals and once we learned that we couldn’t “white label” the platforms, we narrowed our choices to about a half-dozen nearly identical platforms that would provide a white label platform. My point is that there are plenty of opportunities for a publisher to quickly launch a competing site within 50 days, without surrendering their brand name – a brand name that is already (arguably) the strongest brand in their market.
July 4th, 2010 at 4:20 am
BTW, Greg…. ‘Love the new website.
July 4th, 2010 at 4:40 am
Thanks Pat.
July 5th, 2010 at 5:08 pm
Greg,
I haven’t heard specific names but Groupon has 15-20 more substantial media partnerships in the works.
Perry makes some very good points above and it is a risky proposition but ever since the Yahoo Consortium was put together a few years back which arguably may be the best revenue model newspapers have come up with in the past five years, models like this have become sexy. Maybe it is short term thinking but I think it would be hard for newspapers to become the local news channel, the local classifieds channel, the local coupons channel, the local business directory and now the local daily deal provider and do them all successfully.
Groupon brings a new and proven sales arm to the mix, greater brand recognition amongst the total market (possibly not the newspaper readership) and revenue without short term risk.
On the other side….
Beyond what Perry mentioned on the Groupon side, they also get something that have discussed in the past– a second deal in the market. And, they do it without breaking their existing business model.
It may not be a total win/win for McClatchy 5-10 years from now but in this case, there may not be a definitive loser either.
July 5th, 2010 at 5:29 pm
Stan:
I have no trouble believing that there are more such deals in the works. This one I’m sure is the tip o’ the iceberg. The problem that’s emerged for newspapers is that, with a few exceptions, they’re largely unable to build compelling digital products and user experiences themselves.
They can create great content and editorial but they stumble or are too slow otherwise.
July 6th, 2010 at 5:51 am
AIt will also be interesting to see how much confusion this causes among advertisers when the Groupon sales folks go into pitch. Given that the deals are exclusive to the McClatchy papers, the local newspaper’s name is likely to be used in that conversation.
Building compelling digital products has always been a challenge for the newspaper industry for two main reasons:
- Lack of a national footprint. Too many newspaper companies that generally don’t work well with each other. As a result, you can’t spread out development costs and keep up with dedicated players.
- Inability to attract/retain talent. Pay rates are generally below market and there’s no equity upside. Sergey and Larry are each worth more than the entire U.S. newspaper industry.
July 6th, 2010 at 2:26 pm
The most important aspects of daily deal services are branding, distribution and building relationships with advertisers.
it seems like McClatchy is letting Groupon build branding (which turns into distribution) and relationships with advertisers. What is McClatchy getting in return? Commodity-level services (picking deals, editorial, sales).
The right move for publishers is to use a white-label service. Otherwise, they are just selling their subscribers to Groupon in exchange for short-term profits with negative long-term consequences.
Greg, love the new design!
July 6th, 2010 at 2:31 pm
Thanks
July 6th, 2010 at 4:43 pm
I think a better decision may be to stay away from this space if it can’t be managed to the level that Groupon is doing it or clone Yipit and the other aggregators and provide a true one-stop solution.
If a newspaper takes on a product like this it normally takes about 6 months before it is just another offering or they have to stop focusing on one thing to do well with this. Either way, a managed white label could become the old shell game.
Imagine if the media companies getting involved think of the entire space as short term with places like Groupon and LivingSocial having a 3-5 year shelf life. If that were true, then capturing additional revenue from a third party could be a smart decision.
July 6th, 2010 at 6:15 pm
At the risk of being self-serving, I wanted to add a few thoughts to the quality industry dialog…
I personally think the challenge for trad media companies is to redefine the approach to the space from a position of strength, instead of simply copying GroupOn.
The Newspaper industry has proven time-and-time again that anytime they feel “entitled”, they get lazy, and live off the PowerPoint-infused logic of a traditional media company, instead of digging deeper to uncover strategic approaches that are (more) difficult for GroupOn/etc. to replicate, and that look forward to the gaps in current product/market dynamics.
To me, (and yes, to Closely’s agenda) today’s daily deal space is:
1) A “crude-yet-effective” marketing tool/model, which in fact does not serve the “live marketing” needs of the majority of local businesses;
2) a model fraught with resistance by a large volume of SMB’s – buying too many leads at too deep a discount;
3) a poorly targeted delivery and subscription model in terms of location and interests;
4) a print-centric “planned consumption” model vs. an anytime/mobile model;
5) no integration with the SMB’s own social networking activities or intentions;
6) no integration with other lead gen, promotional or brand spending.
Start solving to fill some of these gaps, and you have a much better foundation for differentiation. And, doing so at a deeper local level, where the strategy leverages “relationships” over sporadic campaigns, feels more defensible and meaningful.
I’m sure a lot of these issues are understood and on the way to product adaptation at GroupOn, but some themes are very hard to solve via telesales and one-product media models.
July 6th, 2010 at 8:15 pm
Perry.. nice closing argument. I agree with your points and will say if traditional media got as deep as you describe they could change the space but that could be said about almost every space they play in. Getting that deep has been the trouble.
July 6th, 2010 at 8:21 pm
Thanks Perry. Agree that newspapers would be in a stronger position if they didn’t outsource this.
July 7th, 2010 at 3:05 pm
Perry… “the power-point infused logic”…. does that ever tell a thousand stories! You are so right! It comes down to entitlement and seemingly permanently installed blinders.
July 12th, 2010 at 7:07 pm
[...] up with Chris Hendricks, VP of Interactive Media for McClatchy, about the publisher’s decision to partner with Groupon for daily deals and his view of the relationship ’s value and long term impact on [...]
July 23rd, 2010 at 2:38 pm
[...] although they’ll either be required to partner with an existing deals provider — a la McClatchy-Groupon — or sell the deals directly themselves. The latter scenario probably requires a different [...]
August 12th, 2010 at 11:47 pm
I would say it is a very dumb deal for McClatchy. They are giving away local customers to Groupon. Local is where the current game in digital is.
McClatchy has the sales power in each market that they have offerings in and they choose not to use it. What does this say?? This is one of those deals where the head guy at McClatchy can say he is in the game and partnered with the leader. It makes him look good on paper but it is not a good business play.
March 10th, 2011 at 12:48 am
I see merits in several points above.
Groupon has no other core business than selling deals. They need traditional media like McClatchy to expand their business.
Groupon needs the ability to leverage an audience like traditional media. Enter: McClatchy
Unfortunately, Groupon will sever the relationship between McClatchy and their merchant advertiser: which is suicide. No doubt McClatchy will get a big initial revenue boost.. Meanwhile Groupon will be signing merchants to long-term exclusivity agreements. What happens when Groupon or McClatchy want to walk away from the relationship?
Here is the end result:
Groupon will have McClatchy’s merchant advertisers’ loyalty, their signature on the exclusivity agreement and the end-users’ e-mail addresses. This does not sound like a good deal to me.