Groupon and LivingSocial seemingly stole a march on newspaper companies, which were sitting on the core assets of a deals service: deep local knowledge, sales relationships and vast distribution. In the meantime, as the two deals services have built huge businesses, newspapers have scrambled to catch up, mostly unsuccessfully — but not always.
One newspaper, The San Diego Union-Tribune, is building a powerful deals service that is in many ways giving Groupon and LivingSocial a run for their money in their respective local markets. Its success is a glimmer of hope that newspapers can adopt new techniques in their quest for sustainable business models, but only if they’re able to act nimbly.
The San Diego Union-Tribune’s daily deal program is one of the biggest revenue generating programs across all San Diego media and the largest daily deal program among newspapers nationwide. It launched in April of 2010, putting it quite early on the Groupon bandwagon. It negotiates discounts with local merchants in much the same way as Groupon and LivingSocial. Today, for example, the paper’s website is displaying on its front page an offer of $15 for $30 of Indian food. It is branching out in offering deals via text message too.
Mike Hodges, general manager of the program, said that the site leverages its access to both the newspaper’s subscribers and its advertisers. The Union-Tribune’s target demographic, even its online demographic, like most newspaper demographics, skews older and more affluent.  Like many newspaper-sponsored daily deal programs, the Union-Tribune offers its daily deals partners an ad on the front page of the newspaper and banners on each page of the Union-Tribune’s online incarnation, SignOn San Diego, with no upfront costs.
This is critical for success in daily deals, according to Vin Vacanti, CEO of Yipit, a daily deals aggregator. The success of Groupon and LivingSocial, like with Google in search, comes back to their ability to get beyond marketing budgets. Instead, a local business running a deal looks at it as a commission. Unlike marketing budgets, which tend to be tiny for small businesses, commissions are paid regularly and in much larger amounts.
“The local business doesn’t think of it as advertising,” he said.
Although Hodges said emails offering the daily deals are by far the biggest driver of voucher sales, merchants factor in the additional impressions created by what amounts to free advertising when making decisions about where to spend their merchandising dollars.
“The main thing that we explain is that this is a customer acquisition plan,” said Hodges.
That’s worked out quite nicely. According to Yipit, The Trib’s deals service generates more revenue per deal than LivingSocial in San Diego.
For too many newspapers, according to Vacanti, deals services are extensions of advertising. He notes that The New York Times sends out its own under its “NYT ad-mail” address. He’s still bullish on media companies building their own versions of Groupons if they adopt new approaches. Yipit is tracking 450 deals services now. He expects that number to grow to 1,000 next year. The secret to success isn’t a mystery, he said.
“It just comes down to execution,” he said. “You’re actually doing your reader a good service.”
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