Bazaar Irony for Bazaarvoice

There is certainly a little irony (possibly more than just a little) when a company specializing in viral market announces losses and puts the reasons down to its annual marketing spend.  Isn’t viral marketing supposed to be ‘word of mouth’?  And isn’t ‘word of mouth’ marketing based upon exactly that?

According to a report by TechCrunch, Bazaarvoice spent $35 million in sales and marketing in 2011.  This brings their current deficit to a staggering $40.8 million.  But it is not holding them back from filing for an IPO to raise approximately $86 million.

Bazaarvoice who show no sign of being profitable anytime soon, have included in the filing “We cannot be certain that we will be able to attain or increase profitability on a client-by-client basis or on a quarterly or annual basis.”

Not being an expert in the stock exchange and just reading between the lines, Bazaarvoice really doesn’t seem the most solid investment right now.  How bizarre?

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A Big Deal for Big Commerce

Only yesterday Techcrunch reported that e-Commerce provider Big Commerce has just received $15 million in new investment funding from General Catalyst Partners.  Apart from the fact that this is a considerable chunk of change, it changes the playing field of online commerce.

Big Commerce provides just about everything to enable selling on the Internet.  From setting up a web store, managing inventory and integrated payment processing to a selection of marketing tools including email campaign management.  A little over a year ago, Big Commerce added Social Storefronts to its offering and thus broke into the world of f-Commerce.

With the $15 million injection the company is stating that the money will be used to increase headcount in Sydney and Austin, Texas being allocated for sales and marketing initiatives.

The investment shows a number of noticeable indicators, and here’s my analysis:

  1. Serious money is now being put into social commerce.
  2. Despite the fact that Big Commerce is a Facebook Storefront provider its core business was, and still is, a complete e-Commerce provider.
  3. It wasn’t until Big Commerce was profitable that it received this amount of cash signifying a lower risk for General Catalyst Partners.  Does this really mean that Venture Capital companies are gambling smarter now?
  4. The timing is just right.  Social commerce still hasn’t proven itself as a formidable force and there are still no definitive facts to point to the guesstimate of the $30 billion revenue by 2015, but there is certainly a lot of buzz and noise right now.  This is making large retailers take decisions about the future of their social presence now rather than later, meaning that Big Commerce has just strategically placed itself as the potential number one platform for Facebook stores.

However, as with everything, there is always a negative.  The negative in this case is that customers are limited to choice.  Only Big Commerce platform customers can open Facebook stores with Big Commerce.  So the battle now is against the all-in-one providers such as Big Commerce and the f-Commerce providers who offer complete integration and seamless transitions for customers from their current provider or alternatively just provide a great stand alone social commerce solution.

My prediction at this time is that the market is still so young and so vast that only a year from now we will begin to see the major players of social commerce truly emerge.

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Dealing Direct From Facebook Stores

Sites such as GroupOn, Living Social and Gilt Group take substantial amounts in transaction fees promoting brand deals.  The percentage taken in commission by these sites is approximately 30%, as reported by Techcrunch (http://techcrunch.com/2010/05/02/teardown-groupon/).   This means that for every $50,000 spent by consumers on deals, $15,000 goes to the deal site promoting the offer.  But what does $15,000 actually buy?  The answer is very little besides a closed deal.  Obviously closing deals take a certain amount of advertising and promotion, but why would a brand continue to keep giving such large transaction revenue to group sites when that can do it themselves?

Easier said than done, well actually it is and here’s why and how.  Brands offering deals through 3rd party sites miss out on direct customer interaction and instead, rely even more on the deal sites to provide a constant flow of buyers.  Also worth mentioning is that buyers coming from deal sites are less likely to ever buy a product from the same brand at the full price.  Some restaurant owners have even complained that dining customers who have entered solely through deal sites don’t even leave a tip for the waiter, in order to fully utilize the low price of the deal.

After calculating exactly how much is paid in transaction fees, this money could easily be used to setup their Facebook store and run their own Group Offers and Group Coupons.  The advantages are huge.  The brand has direct interaction with Fans (potential customers), fees and revenue are substantially lower and the cost of acquiring Fans may start high, but will steadily decline as more social interactions are used.  The direct fan base engagement alone should be enough reason for Brands to run their own exclusive offers.

Storefront developers such as Zibaba currently offer their merchants Group Buying and Group Coupon functionality directly from their transactional Facebook store.  The transaction fee takes into account that brands need to do their own marketing, but at 5% to 8% of the transaction fee, that’s a substantial saving.  Sites such as GroupOn insist that merchants offer at least a 50% discount.  Running their own deals, they set their own discount.  Zibaba also has a unique approach to generating traffic to their merchant stores.  Based on the principal of online affiliate marketing, Zibaba also comes complete with a network of professional online marketers who get paid only on performance.  Add this to the social nature of Facebook and that 83% of online shoppers are interested in sharing information about their purchases with people they know, while 74 percent are influenced by the opinions of others in their decision to buy the product in the first place, and anyone can see the advantages of running their own deals and offers.

The average consumer mentions specific brands over 90 times per week in conversations with friends, family, and co-workers. (Keller Fay, WOMMA, 2010).  Wouldn’t it just make sense if they were talking about your brand and not just about the great deals they can get from GroupOn?

 

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