What Local Social Commerce Needs to Really Take Off

Last week, a handful of local e-commerce and interactive marketing announcements from Groupon, eBay and others hinted at future accelerators for the already-hot social commerce space. Up to now, the biggest social commerce category has been more about marketing than selling: Local merchants use their advertising and Yellow Pages budgets on daily deals from Groupon and LivingSocial to attract new customers. But for social commerce to expand, suppliers must get local spending from big national brands, improve conversion with personalized offers and expand beyond customer acquisition into retention. Then they can get around to the actual commerce part.

Marketing will continue to drive social commerce for the foreseeable future. E-commerce is like catalog shopping and won’t likely account for anywhere near 15 percent of retail for some time. But there’s plenty of excitement over bringing social media and local retail together, as illustrated by the following announcements:

  • Groupon’s acquisition of Pelago: Pelago made Whrrl, a location-based service, and Groupon will absorb its team’s expertise in mobile apps for real-time local deals. Whrrl will be shut down, but its CEO, Jeff Holden, will head up Groupon product development.
  • LocalResponse’s launch: Formerly known as Buzzd, LocalResponse makes management and targeting tools that monitor check-ins from location-based services posted to Twitter, among other social media feeds, and enable merchants to send targeted, localized offers in real-time.
  • EBay’s acquisition of WHERE: WHERE’s mobile ad network will live under PayPal, which will integrate payments into geo-targeted offers initially, and may build out other marketing services over time.

Tapping National Budgets

Conceivably, eBay could sell marketers data analysis based on connecting WHERE purchase intent with PayPal purchase data. But eBay is turning into a commerce infrastructure company and PayPal has historically relied on third parties to create marketing services from its data.

That’s fine, because like the LocalResponse services, such sophisticated analysis is beyond the capability of local merchants who don’t even have a marketing department, let alone a bunch of quants capable of doing real-time targeting analysis. Most local small businesses don’t even advertise online yet. The best opportunity for this kind of services is to work with agencies and go after national merchants and retailers who target locally.

Personalizing Offers

Personalized recommendation techniques are gaining momentum. Location-based check-in service Foursquare just started making recommendations based on user’s and friends’ activities. Loopt is adding a Q&A feature to its location service that could get recommendations from friends in real-time.

Om recently wrote that “interest graphs” could supplant “social graphs” in commerce. In other words, purchase decisions depend more on what you like than whom you know. As Groupon gathers more data about its users’ deal purchases and combines that with collaborative filtering, it could blend that analysis with Whrrl-like interest groups to make highly personalized offers.

Expanding into Retention and Loyalty

Today, most merchants use Groupon or LivingSocial deals to attract new customers. Merchants would rather not offer heavy discounts to existing customers who have already proven a willingness to spend, so social commerce companies will have to develop loyalty programs that accommodate frequent buying points, access to exclusive products and cross-category points.

That means bringing together multiple retailers and merchants. Foursquare did a program with PepsiCo and Safeway’s Vons store loyalty program. Swipely has de-emphasized its credit-card based purchase-sharing social network in favor of a points program that ties multiple loyalty programs.

Watch for a secret new startup that’s launching this week to unite all three of these angles. It will feature personalized offers based on consumer preferences that tie into loyalty programs from national players via their affiliate networks.

Question of the week

What will it take to grow local social commerce?