Social media for the Paranoid

I have been looking at the valuations ascribed to the new social media players and feel like it is the year 2000 all over again.

Cheap money has that effect on activity, but ironically is not (I believe) a long term driver for social media – it is too fungible.

I really admire the ideas behind ThePoint - the idea of facilitating effective group action by helping people find like-minded individuals and giving them the tools to put action behind their feelings is very clever. The currency is Feelings – that is what drives people’s involvement in an social campaign.

Of course Friends is supposed to be the metric that drives Facebook – you join to find and communicate with your Friends. But do people come back time and time again for the Facts about their friends (Joe had a new baby), or the Feelings (Joe had a new baby!!!)?

The most interesting example is dating sites. The early sites were essentially all about Facts (tall blonde, blue eyed, lives in Chicago, and wants kids) and that is still the dominant mode – but eHarmony really make a conscious drive towards “chemistry” in other words – Feelings. The problem being that particularly guys want to browse and that is not the eHarmony way. OKCupid (OKC) has my absolute favourite blog for insight into what people do as opposed to what they say they do. How do they know people’s Feelings? Well through user submitted questions. The clever part is that in order to find out whether your potential new friend likes making out in a graveyard you have to reveal that Fact to the system first. Lots of emotionally biased questions equals a pretty good insight into your Feelings.

So how to get  a fact based network to a Feelings based one? That is hard. Clearly when ThePoint evolved into Groupon they left behind the Feelings part and embraced the money motive.

Of course OKC has the problem that after getting people to divulge a huge amount about their inner thoughts and Feelings they then find their soul mate – and leave. Actually they don’t – what is striking is how many profiles stay up after the initial goal has been met because of the community.

So if you are starting a Fact based service – how do you get to Feelings?

Its much harder than getting to money, but if you can do it you have a much more robust offering.

Is Groupon worth $5billion?

That is the figure that the Financial Times was suggesting this weekend.

So what do we know about the business? 35 million users in 300 markets such as Boston, Washington, etc.

So what do we know about the business? Well besides the numbers in the FT there are much better numbers in the comScore blog.

35 million users in 300 markets such as Boston, Washington, etc. Revenue of $2 billion in two years.

Groupon claims that they have sold 16 million deals and saved $730 million.

So that is an average “saving” of $45 a deal. That does not match the $10 to $30 range that comScore suggests and I agree with . I guess this means that when someone buys they actually buy several coupons from the same vendor.

So lets say two coupons per deal per person on average. That makes 32 million coupons and $23 a coupon in savings.

If the average discount is still 60% I would be surprised – they seem to be all 50%.

If Groupon makes 50% of the revenue that means around $11 per coupon

So that means $730millon in revenue to Groupon, which does not match with the $2billion in revenue.

What I really think is going on is amazingly growth. As comScore reports in October 2010 6.4 million people visited Groupon.com, up 657% from 894,000 a year ago.

Six hundred percent growth for another year would put them at over 200 million people.

Is that likely? Well Facebook is at 500 million and valuation of $33billion, and Twitter is at 190 million and a valuation of $4billion.

But Groupon  has a real robust revenue model, which is more than most can say.

So is this defendable?

I think the answer is a surprising yes, even if the margins shrink alot. Because if someone is going to sign up for a local deal (Groupon, BuyWithMe, SocialLiving) then it makes most sense to first sign up with the best known.

Could Google compete? Well only if they break their search model and promote their own service above all others irrespective of the reality, and even that is not certain. Paid Ads won’t catch up with a social growth driven company.

The equation is not the same for the local vendors. Groupon wants them to promote a lot of coupons and that can be killing for a small vendor that has a real Cost of Goods (COGs) sold. So Groupon has a real problem finding good deals. It becomes much easier to strike a deal with a chain – or even better a vendor with a near zero such as a online company.

So Groupon is going to end up having to move away from the small local vendor in order to fuel their growth.

Ironic really.