Topic: Bob Lefsetz: Groupon as a Model Music Marketing
- Dec 23, 2010 07:36am by NRG - livin the art that is life !
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from Bob:
Groupon's $6 Billion Gambler
The 30-year-old CEO in Chicago is changing the way we buy from local businesses. And trying to make billions doing it.
There's got to be a better way to sell music.
Think about it, we're now all connected, worldwide, if the right act were pushed, it could become gargantuan overnight.
And that brings us to our first problem...we're pushing the wrong acts.
I just read a fascinating article about Groupon in the "Wall Street Journal". And it occurred to me that these tech wonders, these Websites that everybody uses, are no different from great records.
Great records are phenomena. Completely different from anything else, people just can't get enough of them.
Like "96 Tears". Or "Walk Away Renee". Nothing sounded similar before and nothing has sounded the same since. Why were they so successful?
Because they were different and good.
And isn't it fascinating that right now all the records sound the same. Come on, tune in Top Forty radio, if I hear one more synthetic drum I'm going to kill Roger Linn. Or ransack the Roland Corporation.
We've become so lowest common denominator that we've missed the point. And too many old school people believe the way to break an act is written in stone. Work with usual suspect producers, get it on the radio and TV and then hype it to high heaven in any other media that will have you. If this were working so well, the music business wouldn't be in trouble. Don't focus on piracy, that's missing the point. Piracy killed the old model. But piracy also demonstrates demand. More people want more music than ever before. More people own more music than ever before. More people are listening to more music than ever before. And to focus on success as sales of recorded music or concert tickets is completely missing the point. Once you get all those eyeballs there are a million ways to monetize. But how do you get everybody to pay attention?
1. These successful sites are never created by newbies. Mark Zuckerberg was a coding savant. Shawn Fanning and Sean Parker were dedicated to their computers. Why in the music business do we push inexperienced talent?
You've got to pay your dues if you want to sing the blues.
It's Gladwell time. We need acts that have put in 10,000 hours. They can't be ten. The Beatles played a thousand gigs before most people knew who they were. And sure, George Martin helped, but George Martin did not hit with every one of his production clients.
We've got to look for the experienced. We've got to focus our efforts on only one or two acts, the creme de la creme, stuff so good that it's undeniable.
2. Getting people to hear it. This is where new techniques like Groupon come into play. This is why the music industry is in such trouble, it's run by oldsters who don't understand tech and wish the Internet would go away. Furthermore, these oldsters have not allowed the youngsters in. They literally don't let them work at the company and those that are employed are not empowered and those that look for rights are not licensed. Never forget that music led. Napster was about music. Napster was the best thing that ever happened to music. It allowed all that unreleased stuff to come out of the vault, it paved the way for MP3 ubiquity and now streaming. To fight Napster with lawsuits and CDs is like fighting Facebook with the Girl Scouts. Never overlook the network effect. That's what's gonna blow up new music. Assuming number one above is put first, that the act is truly great.
3. How do we incentivize people to hear it. Maybe that's the wrong way to look at it. Maybe we make music freely available, like FarmVille, and upsell thereafter. Maybe we need a music game that gets everybody to pay attention. That allows them to win free concert tickets and visits from band members. Only one site triumphs online. There's one Amazon, one iTunes, one Facebook and one Twitter. There will be one online music hub. Foster competition to create it. Once we get everybody playing in this sphere, we can then expose people to new acts. They'll already be there, they'll already be paying attention.
4. Monetization. Don't think about records and concerts, think about access, think about elation, think about rewards. Maybe you let everybody come to hear the album of the new act streamed at Staples Center for free, but they pay for pizza and beer. Think party. Sure, you might be able to hear the album right thereafter online, but you won't have the experience of hanging with your friends! And never diminish virtual goods. It's a gold mine waiting to be tapped.
We've got to get the minds creating Groupon and Facebook to work in music. It's our only way out. We need a complete rethink. It would be great if we could have easy, cheap licensing, but that seems impossible.
So what's going to happen is one of these tech savants is gonna find a band. And is gonna use all this newfangled media to break said band. Sure, it's happening already, but the bands just aren't good enough, they're not the Beatles, one listen is not enough.
But once we've got acts this good...
The whole thing will feed upon itself. A scene will develop. Money will be made by the boatload.
It's all about creativity. Music and tech. It's about great ideas, ones that have never been seen before. You've got to let these techies get ahold of great music and run with it.
Which is why you should only sign with a major label if you're making the kind of crap that people are already listening to in ever fewer numbers on the radio. If you've got something different, keep your rights, tie up with someone as creative as you are. It's not about Alex Luke going to work at EMI, it's about creative techies you've never heard of doing it in a brand new way.
We didn't know we wanted Groupon. We don't know we want music served in a whole new way. But we do.
As for the acts... Is it too much to ask for performers who can sing well, play their instruments and write catchy songs that you can sing? That was the essence of the Beatles. Replicate this and you're on your way.
The article that inspired me: http://online.wsj.com/article/SB10001424052748704828104576021481410635432.html (see this article below)
from Wall Street Journal
By BARI WEISS
Chicago
Enter the offices of Groupon, the hottest Internet start-up in the country, and staring down at you from the wall is 30-year-old CEO Andrew Mason. He's on the cover of Forbes Magazine labelled "The Next Web Phenom." On the wall surrounding the glossy are eight other covers trumpeting other one-time start-up superstars: Steve Case of AOL, Sean Parker of Napster, Jonathan Abrams of Friendster, Chris DeWolfe and Tom Anderson of Myspace, and more. Where are they now?
"We were on the cover of Forbes and people were so excited," says Mr. Mason, "but it made me nervous."
The boyish entrepreneur has reason to be. For every wunderkind tech titan, there's a burnt-out prodigy. Mark Zuckerberg is Time's Person of the Year, and Facebook may be worth more than $40 billion. But few outside Silicon Valley know of Mr. Abrams or Friendster, which was the hottest social-networking site when Google tried to buy it in 2003.
Mr. Mason is lately in the news for reportedly turning down a $6 billion buyout offer from Google—almost double the search giant's most expensive acquisition to date. It's a bet that Groupon, his two-year-old website that's making the coupon hip and ubiquitous, will be the Next Big Thing.
The basic idea is simple: The site offers subscribers (44 million and counting) at least one deal a day in their city—say, half-off for sushi dinner or a spa treatment. But Groupon's innovation is the collective buying model suggested by its name: group plus coupon. A certain number of people need to buy into any given deal before it kicks in, or "tips" in Groupon parlance. Once the deal tips—for example, 200 people have purchased a $40 coupon for an $80 massage—the merchant and Groupon split the revenue roughly 50/50, and a group of customers has an unbeatable bargain.
"What we're trying to do is fundamentally change the way that people buy from local businesses in the same way that e-commerce has changed the way that people buy products," says Mr. Mason. So it's like Amazon for small businesses? "We want to have that same kind of transformative effect on the way that [people] think about buying locally."
Arguably the biggest winner in all this is the local business. Until Groupon came along, a small business—say, an independent yoga studio—was generally confined to advertising in newspapers, on the radio and online. Those types of ads have two disadvantages for merchants: They have to pay for them, and they have no real control over who sees them.
Groupon fixes those problems. First, it's free. It costs that yoga studio nothing to get on Groupon and be seen by its legions. Second, it also makes sure that the deal for a half-off class is seen by the right consumers.
But that's only if the yoga studio makes the cut. At this point, says Mr. Mason, Groupon has so many requests from businesses "that we have to pass on seven out of eight merchants that contact us."
In December 2008, Groupon had 400 subscribers. That means that the site has grown by a factor of 110,000 in two years. The company added three million subscribers alone in the week following the rumored Google acquisition earlier this month. And Groupon's average subscriber is a marketer's dream: She's between the ages of 18-34, single, and there's a good chance she makes more than $70,000 a year.
The bottom line: If Groupon's gambit is successful, then the $6 billion Google reportedly offered the start-up will ultimately look like bubkes.
Walk around the company's headquarters in downtown Chicago and it feels like the fastest growing company in history. (According to Forbes, it is, based on a study projecting that the company is on pace to make $1 billion in sales faster than any other business, ever). The sixth floor of the old Montgomery Ward building is set up like a scrubbed-up newsroom: no walls, row upon row of shiny white desks, a live video feed to the Palo Alto satellite office. The employees look like they've stepped out of a J. Crew ad: perky, good-looking and young (average age: 25). Mr. Mason's desk, no different from any other, is in the middle of the hubbub.
At other hot start-ups like Facebook and Twitter, the whiz kids are the computer programmers. At Groupon, they are the savvy sales representatives. An army of 20-somethings works the phones and Macbooks to build relationships with the most desirable local businesses in 375 American cities and 35 countries. Just this week the company broke into 10 cities, including Kalamazoo, Mich., and Harrisburg, Pa.
Mr. Mason demurs when I ask him how the company breaks into new markets—it's the "secret sauce," he says. But conversations with other Groupon employees reveal at least this much: When there's an untapped market, salespeople have a few weeks of lead time to do research in the area. The company won't reach out to just any business: It must have a certain number of outstanding reviews on sites like Yelp. While salespeople explain the model, the marketing team spreads the word that Groupon is coming to town, especially via sites like Facebook.
The company also relies on "fanatical" customer care. "We have a policy called 'The Groupon Promise' that any customer can return a Groupon, no questions asked—even if they used it—if they feel like Groupon has let them down," Mr. Mason says. The Chicago office maintains a 24-hour-a-day hotline so that any customer—confused, disgruntled or otherwise—can call and speak directly to a human being.
Maybe even a funny one: Many of those who answer the phones, and who write the text of Groupon's deals, are plucked from Chicago's legendary improv-comedy scene. A skydiving deal from this week opened with: "Skydiving is the perfect way to celebrate a birthday, sweat out premarital terror for a bachelor or bachelorette party, or take a glorious leap into a new life as a migratory swallow."
Irreverence is part of daily life in the downtown office. Last Wednesday, someone brought a monkey dressed in a Santa suit. This past summer, Mr. Mason paid a male actor to strut around the office in a tutu for a week—totally mute. Less outrageously, the company has no dress code and no vacation policy, which Mr. Mason credits to Netflix.
"The way people think about jobs, the nine to five . . . it's the same routine over and over again," he says. "Groupon as a company—it's built into the business model—is about surprise. A new deal that surprises you every day. We've carried that over to our brand, in the writing and the marketing that we do, and in the internal corporate culture."
Like so many other successful tech ventures, Groupon grew out of an earlier, less successful idea. ThePoint.org was a website for organizing campaigns like protests or fund-raising drives. And, like Groupon, it was built around the tipping point concept: The campaign was only carried out if enough people committed.
But ThePoint never took off. "The big problem with ThePoint is that it's this huge, abstract idea. You can use this platform to do anything from boycotting a multinational company to getting 20% off a subscription to the Economist," says Mr. Mason, who dropped out of the University of Chicago's master's program in public policy to build ThePoint with $1 million investment from Eric Lefkofsky, a former boss and serial investor who later helped found Groupon.
One lesson Mr. Mason learned is that for a site to be successful, it needs to be simple and easy to use. ThePoint, says Mr. Mason "was overly complex and we needed to pick . . . one application of the larger abstract idea and execute it really, really well."
Another was a broader lesson about the nature of do-gooder ventures. "One of the things I realized . . . is how few success stories there are in websites or products or businesses that exist primarily for an altruistic purpose. Most of the time, the things that really change the world exist for something fundamentally selfish and then the world-changing ends up being a side-effect of that. Whether its Facebook, Flickr, YouTube or Twitter, all those things have made the world better by the way that they allow people to share information. But that's not why they were created. It was so they could share pictures and videos of scantily clad women or kittens or whatever. And Groupon's the same way. And it caught me by surprise."
Groupon sold its first deal—two pizzas for the price of one—in October 2008. Twenty Chicagoans bought in and trekked to the Motel Bar, located . . . on the first floor of Groupon's building.
In the early days, many deals didn't tip. No longer. Groupon now promotes some 650 deals each day and more than 95% of those tip. Upwards of 26 million Groupons have been purchased world-wide, saving customers in the U.S. $850 million.
Most of the time, the deals are for services: museums, spas, bars, salons and restaurants. Sometimes they transform a business in 24 hours. The Joffrey Ballet is one such example. On Aug. 18, 2,338 people bought highly discounted subscriptions to the company's upcoming performances, doubling the ballet's subscription base for the season in a single day.
They can be too successful. The 445,000 coupons sold to the GAP (it was a national deal; $25 for $50 worth of merchandise) crashed the clothing chain's server. Not a big problem, since it's a major company. But when a nail salon or cafe is suddenly flooded with thousands of customers and those customers don't have a good experience, the deal may harm the business.
Groupon works closely with its merchants to prepare them for the onslaught, sometimes even suggesting capping the deal. "We have so many customers that our biggest problem is that sometimes we overwhelm merchants with the number of customers we bring them."
It's a good problem to have and it's leading Groupon to constantly update its offerings according to a strategy informally called Groupon 2.0. The plan starts with personalizing the deals subscribers see.
Each user still sees the deal of the day, but Groupon has begun using variables like gender, neighborhood and buying history to decide what deal comes up on a particular screen. "That allows us to preserve what feels like the same Groupon experience for customers, while at the same time giving a more relevant experience and serving far more merchants than we could otherwise," explains Mr. Mason.
Then there's Groupon Stores. "What we've just recently started testing in Chicago, Dallas and Seattle is allowing merchants to create their own deals," says Mr. Mason. "Any merchant can create a deal and send it out to their own audience" without Groupon employees vetting the specific deal, say 20% off a particular brand of jeans at Nordstrom Rack. While Groupon gets a percentage, it's sometimes as low as 10%.
They can also, crucially, post it to a page of their own on the Groupon site. That way, they reach large numbers of potential customers without having to be selected as the Deal of the Day or reach a tipping point.
Groupon Stores allows Groupon to bring in "more merchants so that we can get more deal-flow into the system." As it brings in more and more merchants, the company moves closer to becoming a clearinghouse for local businesses.
Groupon's inability to handle the businesses banging on its door, says Mr. Mason, has led to the proliferation of clones. He estimates that there are some 500; many have ripped off Groupon down to the company's bright green signature color and website layout. But only Living Social, which just received a $175 million investment from Amazon, has emerged as a genuine competitor. Groupon still maintains about 80% market share. Losing to a competitor, perhaps one that doesn't exist yet, is one way the company could fall.
There's also the possibility that Groupon has taken off in the middle of a new tech bubble. Some analysts argue that social-networking sites are overvalued—Groupon included. Twitter, for example, is now valued at $3.7 billion by investors including Kleiner Perkins, even though it will reportedly earn roughly $50 million in ad revenue in 2010.
For now, the Pittsburgh native is trying to stay grounded amid new fame and wealth, which he says is "totally weird." Most of all, he's trying to maintain single-minded focus on his exploding company. "You've got to go out there and kill what you're going to eat."
