Search engines and social networks might not be in the journalism business, but they compete with news organisations for advertisers. And it’s not just new competitors that are challenging news groups for advertising revenue, it is also about an ever-changing landscape of technology and techniques, such as ad networks, re-targeting and now real-time bidding, which is also known as ‘programmatic’ buying and selling.

What is real-time bidding?

So what is real-time bidding? Online publishing data company Crowd Science explains real-time bidding like this:

Real-time bidding (RTB) is a relatively new advertising technology that allows online advertising to be purchased and served on the fly. Instead of reserving prepaid advertising space, advertisers bid on each ad impression as it is served. The impression goes to the highest bidder and their ad is served on the page.

RTB is an evolution of how ad exchanges used to sell remnant inventory, though it can seem challenging at first because of the alphabet soup of acronyms used to describe different parts of the marketplace. Here’s how it works: To facilitate the real-time bidding process, RTB exchanges buy data, often via tracking cookies, from across the web, and the data used across the process is managed by companies selling data-management platform (DMP) services. Supply-side platforms (SSPs) allow publishers to sell their inventory, and demand-side platforms (DSPs) allow advertisers and agencies to bid on the inventory. DSPs aggregate the inventory from multiple exchanges and, as Hollis Thomases explains on Clickz, “DSPs eliminate the need for another cumbersome buying step, the request for proposal (RFP) process”.

To simplify the process even further, Eric Picard of iMedia Connection broke down the RTB process from advertiser to consumer in this graphic.

For a more in-depth overview of the platforms, acronyms and technology behind digital ad exchanges and the programmatic buying and selling eco-system, we’ve written a brief primer to help you make sense of the jargon.

Here is another short explanation of RTB. The explanation is brief and useful, but the presenter speaks a bit quickly.

What is the opportunity of RTB?

RTB is relatively new and still makes up only a small part of the display advertising market, even in the most developed digital markets. Last year, RTB made up 13 percent of the US display market, but that figure was triple what it was the year before, according to eMarketer. The group estimates that the figure will rise to 19 percent this year, adding:

Research firms estimate US RTB digital display ad spending will total between $1.1 billion and $2.1 billion this year, driven by improvements in RTB technology and increased investment from both media buyers and publishers.

With the current downward pressure on CPMs (cost per thousand impressions), some publishers are concerned that RTB-powered ad exchanges will simply add to this pressure. Publishers also fear that they will lose control over how ads are displayed on their site and that this complex, technical system will require too many resources to adapt, according to Alex Gardner of MediaPost. However, RTB is not being driven to reduce already low CPMs. It is being driven by one thing only: increasing the efficiency of digital ad buying and selling.

Right now, there is too much friction and too much cost in digital ad buying. The process is complicated, time-consuming and expensive. Advertisers ask for request-for-proposals (RFPs) from publishers. After some analysis, the advertiser or agency chooses a couple of publishers based on some of their campaign goals. They create an insertion order, and send it out. Next the ad is created and agreed upon. “Somehow that all has to get delivered and measured,” Rodney Mayers, chief revenue officer of digital content data company Proximic, said in an interview with Knowledge Bridge.

The main impetus behind RTB isn’t that advertisers want cheaper inventory, Mayers said, adding:

I don’t as a buyer have the time nor does the client, the actual advertiser, want to bear the cost of all that friction. … The thesis behind programmatic buying, at least, is that I want to do the same thing. I just want to do it faster, and I want to do it right now. If your supply is in the system, and your audience data is in the system, your pricing is in the system, I don’t need to actually send you anything. I just need to buy it.

For publishers, RTB exchanges deliver greater flexibility to manage ad yield, Mayers said. Publishers can dynamically manage how much inventory they place into the exchange. He gave the following example:

This week my sales guys are selling kind of low. I am going to put 70 percent of my inventory in the exchange. Wait a second, a buy just came in. I can cut that 20 percent because I need to deliver for this $300,000 campaign. Next week, my sales guys are through the roof. I only need to put 10 percent in the exchange.

As for some publishers’ fears of lower CPMs, Mayers says that the more efficient process doesn’t just benefit advertisers and agencies but publishers as well. “Would you prefer a lower dollar CPM at a 2 percent margin because of everything that went into selling and winning, or would you prefer a $2 CPM or a $6 CPM at a 98 percent margin?” he asked, using hypothetical figures for the margins to prove a point.

The key for publishers is to effectively manage your advertising mix to the get the most digital revenue for your news organisation. He said:

It’s not a zero sum game. … It’s about balancing and managing yield so that … instead of one $200,000 buy, you end up with $250,000 where the 50 grand came basically came from exposing your inventory to everybody that wants to buy it.

How to shift your organisation’s thinking

The challenge of RTB, specifically, and digital advertising, in general, is not just technical. It also challenges much of the thinking and culture of media ad sales. How? “We’re seduced by big buys,” Mayers says. When one of your ad sales staff closes a big deal, it’s not just a jolt of adrenaline. “We feel special if we get one $300,000 buy. It reinforces everything that we believe about ourselves,” he says.

Programmatic buying takes away that rush and that affirmation. “(T)o get $300,000 automatically or through mechanised means or programmes, it seems a bit inhuman,” he concedes.

In the analysis of how news organisations have struggled and often failed to adapt to the changes of digital media, most of the focus has been on the newsrooms and on journalists and editors. However, little time has been spent on how the changes brought by the digital transition have affected the commercial side of news organisations. Mayers has put his finger on one of the reasons why traditional media sales teams have often failed to embrace some of the opportunities of digital advertising: selling thousands of impressions at $2 CPM just doesn’t feel as good.

In what he admits might sound a bit cryptic, Mayers says, “Do not underestimate the power of aggregated demand.” Sure, aggregating thousands of automated sales will not be as powerful as a big sell, but he urges publishers not to sit on the sidelines while this market develops.

For most news organisations, the response to the mobile revolution will be one of distribution, but Cory Bergman, the General Manager of mobile-first news service Breaking News, says that the mobile revolution is about more than distribution. Distributing your content to mobile audiences is a challenge easily met, but media are only starting to grapple with the business challenges. Writing for the Poynter Institute, Bergman said:

The mobile revolution isn’t about design and distribution as much as it is about revenue disruption. … Both Craigslist and Google created new business models enabled by the technology and scale of the Internet. In the same way, mobile is enabling new business models and use cases. Just like the mid- to late 1990s, we’re at the leading edge of the ensuing disruption.

He believes that mobile payments and geolocation, the ability of phones to customise advertising and content based on a user’s location, could disrupt local advertising. “For local media organizations, that has the potential to destroy your business,” he adds.

This disruption is not far off, he says, and he points to the moment where mobile internet use will surpass desktop. If anything, the developing world is ahead of the developed world in this respect. As we’ve pointed out several times here at Knowledge Bridge, for many internet users in Africa, the Middle East and South Asia, mobile internet access is people’s sole way of accessing the internet. In many countries, mobile will dominate, rather than the desktop internet.

This isn’t just about differences in distribution channels. Just as importantly, there are dramatic differences between the business of the mobile and desktop internet. As Bergman says:

There’s a huge gap in advertising yield between desktop and mobile experiences: $3.50 versus $0.75 in average CPMs, according to Kleiner Perkins’ Mary Meeker. Mobile is growing so quickly, the explosion in available inventory is depressing advertising rates.  Ad agencies typically lag demand, which means this gap won’t be bridged anytime soon.

Bergman’s worry is that news organisations’ response to the mobile web will be similar to that of the desktop web: that with such low advertising margins, it would be too easy to focus the business on the desktop web, even though this would ignore a growing segment of the audience.

However, as the news industry is realising with the desktop web, simply applying advertising and revenue models from traditional media to digital media isn’t proving to be successful. The same holds true for mobile media, and the strategies that worked for monetising desktop audiences will not be the same strategies required to monetise mobile audiences. It will take creative thinking both in terms of content and commercial teams to come up with appropriate and successful strategies for mobile.

To develop these successful strategies, Bergman suggests that news organisations consider how the mobile experience differs from the desktop internet. “Mobile is not merely another form factor, but an entirely new ecosystem that rewards utility,” he said. News organisations need to consider how to tap into the high level of social media use on mobile, the opportunities of location both for targeted advertising and targeted content and also the increasing use of mobile payments as potential ways to build this utility and the commercial activity needed to support their mobile efforts.

The main digital challenge facing many news organisations isn’t attracting an audience but monetizing that audience. With dropping digital advertising rates due to an excess of digital advertising returns, and a host of new competitors for digital advertising revenue, reaching digital profitability can seem like an uphill battle.

To compete effectively, news organisations need to improve their use of data and engage with other digital advertising innovations, says  Rodney Mayers, the chief revenue officer of data and analytics company Proximic.

“Advertisers know more about your audience than publishers do,” Mayers told the independent publishers Association of Alternative Newsmedia digital conference in the United States. Publishers need to respond with their own data to earn better returns on their ads.

Use the data tools that advertisers use

The advertising industry is becoming increasingly sophisticated in their use of data to assist buying decisions. Proximic provides page level analytics to media buyers allowing them to understand more about potential ad positions, including content category, potential impact for brand advertisers and overall page quality. All of this is done in real-time, which Mayers says means less than 5 milliseconds. They work with such major companies as eBay, WPP’s GroupM and AdMeld, which was acquired by Google in 2011.

In an interview with Knowledge Bridge, Mayers challenged publishers to use these data tools to get to know their audience better. Editors and publishers used to rely on their gut instincts to deliver stories that their audience wanted to read and an audience that advertisers wanted to reach. He said:

Back in the day, that was the what the editors knew. They had a feel for their audiences. You couldn’t put it into data, but they had a feel for their audiences. That helped shape the voice of the paper. It helped attract the audience, and then the audience was able to be sold.

But where once gut feeling was enough, Mayers says there’s now an opportunity for publishers to exploit the data revolution and refine their understanding of their audiences. Data allows publishers and editors to test the “feel for their audiences” against measurable outcomes to drive more traffic and more engagement with their journalism. Higher audience numbers, higher engagement and better audience data can help publishers make the case for higher ad rates than the industry average.

For advertisers, Mayers said: “…if they have high confidence that they are reaching their target audience with the message they want in an environment that allows that message to be communicated, they don’t mind paying a premium for that. They really don’t.”

However, Mayers was frank in discussing the differences in the way that journalists and advertisers define premium content and, therefore, premium ad rates.

“The journalistic side (of the media business) says, ‘I did good work. This is journalistically sound. This is excellent. We are the major newspaper, and we are worth $35 (CPM),'” Mayers said. To put that in context, an analysis by comScore in late 2011 found that the average CPM for newspaper websites was not $35 but $6.99.

However, it’s clear that the premium probably isn’t $35 CPM. Mayers said:

Gone are the days of ‘I declare my CPMs and you just pay it’ because as with the competition of news and information, broadly speaking, you have a general competition for attention. If you prove, in your case, as a publisher, that you have won or are competitive in the attention game, that your folks disproportionately spend more time with you versus someone else, that supports a higher CPM. Just declaring, I am who I am and I’m worth it. That doesn’t work out here.

With the glut of digital ad inventory, media buyers are turning to data to improve the effectiveness of the ad buys for their clients. Proximic is just one of a number of companies that have launched to feed this need for data and analysis in the media, advertising and marketing industries. comScore provides audience data, while bluekai and Lotome provide data management platforms and other data services for marketers, publishers, ad agencies and data providers.

Mayers recommends that publishers consider using these data services to help improve their advertising returns.

The tools that are available to advertisers, publishers need to take them and flip them around and say, “…How do I use it to better describe my audiences so that I can sell that to my advertisers?”

For instance, he said that advertisers practice “impression weighting” on a site to determine which pages are getting more traffic and attention. Publishers need to use the same technique to sell those pages at a slight premium “because that is where the audience is”, Mayers said.

However, local publishers also have an advantage over most big advertisers. The advertisers might have national data, but local news organisations often have much more granular local data, including offline data that can help them pitch to advertisers. He said:

You have to be the expert (on your market). (Advertisers) will have big national numbers and distributed trends and beautiful graphs, but at the end of the day, you have to say that I know more about this because I did 14 events in the last 13 days. I have connections with the X,Y,Z (name the local organisation) and I’ve been in this market for the last 25 years.

Offline market data is hugely important even in the digital age, Mayers said:

Why? Because no one else is going to bring them that. No cookie in the world is going to describe that. That is where you get the premium side of the buy. Audience analytics. Knowing your audience better than anyone else will set you apart.

Do you have a product worth selling?

To win advertisers and get premium rates, publishers also need to be prepared to demonstrate how engaged their audience is with their content. Advertisers want to know not just how many people came to your site, but also that they stayed on your site long enough to engage with your content and their ads. Advertisers also realise that, just like journalists, they are in a battle for attention and they don’t want to be on a page where they are one of eight ads. They want to be on a page where they are one of three ads, or possibly just the only ad, Mayers said.

While he urged publishers to adopt data and analytics to improve their commercial performance, he also said that data tools are important in improving editorial performance. He said, “Publishers need to embrace that side of what they do right down to how many people read this article. Was this article important?”

If an article attracts zero readers, you don’t have anything to sell to advertisers. He added bluntly, “if your audience doesn’t think this is a product that they want to spend time with, nothing is going to help your CPMs.”

That is not something that most journalists and editors will want to hear, but if you know which stories no one reads online, that can help you allocate editorial resources, which are for many newsrooms becoming increasingly scarce. That doesn’t mean that you have to stop covering those stories, but it should make you rethink, at the very least, how you cover those stories.

Mayers’ advice for journalists, editors and publishers can appear direct, possibly even blunt, but all journalists want to have an impact and reach the widest audience possible. Data and analytics insights from companies such as Mayers’ could help your journalism compete for your audience’s precious time and attention, and to help you compete for revenue to support your journalism.

To take advantage of this growth in internet advertising, we explore how to organise and motivate your sales team. Advertising sales is fundamentally about solving problems for your advertisers by providing them with products and an audience, at prices they are willing to pay.

In the next presentation we look at key sales concepts including:
• Calculating your potential advertising market.
• Identifying sales channels.
• Strategies for making money in print (or broadcast) and online.
• Motivating your sales force.
• Organising digital sales.

After looking at how to organise and motivate your sales teams, we look at two types of digital advertising: ad networks and classifieds. As we wrote about recently in the August Digital Briefing, ad networks can be an important source of early income as you grow traffic to your site.

Although a couple of large ad networks get the lion’s share of the attention, there are more than 300 ad networks out there, with some focused on specific platforms or technology such as mobile or video ad networks, some focused on specific geographical areas, others focused on specific themes or types of content such as the Active Youth Network and even others focused on audience behaviour online.

Ad networks help address a number of issues facing advertisers such as the large choice of publisher sites leading to an over-supply of ad space, and the difficulty of identifying high-quality content.

In the next presentation, we look at different ad network pricing models and how to choose the right ad network.

We look at classified advertising, beginning with a cautionary tale about the collapse of online classifieds as a revenue source for newspapers in the US. New online classified players such as Craigslist, Monster.com and HotJobs.com all helped to shift classified advertising from newspapers to new digital players. We look at how to develop your digital classifieds offering to prepare to defend yourself against new digital competitors.

Online classifieds include not only the “Big Three” of classified advertising – recruitment (jobs), real estates/rentals and auto – but also directories, free classifieds and calendars. Specialist classified providers that focus on dating, education or other types of products and services have also sprung up. Online classified advertising is in the early stages of development, but it still represents a potentially large market and has already attracted a number of large, international players.

We then cover several different strategies for developing your online classifieds business, including:
• Go it alone: building, selling and marketing your own classified advertising site.
• Build a network with other local media.
• Partner with a national site, which provides the technology and perhaps marketing and sales service, leaving you to focus on local marketing and sales.
• Enter into a traffic partnership, which means that you sell a traffic sponsorship deal to a national partner.

We look at examples of these strategies and how to organise your business to achieve success using one of these strategies.

Of course, digital advertising is a fast moving sector, so we also look at new developments and the future of the online classifieds.

In the final presentation, we look at how news organisations are using social media to generate revenue, either indirectly by using it to grow audiences and gain more data about their audiences, or directly by selling social media advertising.

When Microsoft bought aQuantive, online display advertising was booming and the software maker was hoping to challenge the display king at the time, Yahoo, and the rapidly rising online advertising giant Google. It’s important to remember that while Google made its name as the search engine of choice for billions of internet users, the business that drives its billions of dollars in profit is advertising – search, display and mobile. How times have changed!

In a few short years, Facebook has knocked Yahoo from its display ad throne, and the bigger challenge for the entire sector is that the returns for display advertising have been plummeting.

In looking at Microsoft’s multibillion dollar write down, Reuters looked at why the display advertising market has gone soft:

The main culprit is an explosion of advertising space offered by Facebook Inc and other websites that is outpacing steady demand. But automated online exchanges, smarter search advertising and a growing skepticism about the effectiveness of jamming ads in people’s faces have also conspired to slash prices and suck profits out of the business.

“The inventory or amount of ad spots grew so fast, it outgrew demand,” said Dave Morgan, an industry veteran and entrepreneur. “That brought pricing down massively. So a lot of display advertising really became a ghetto for bad direct-response advertising.”

It’s not just the simple law of supply (or in this case, over-supply) and demand. Studies find that sophisticated users are able to simply blank out advertising, no matter how intrusive; Reuters quoted one business saying that it had shifted from using display ads to paid search advertising, affiliate marketing and comparison shopping sites.

For news organisations, Microsoft’s failure and the decline of the display advertising market hold some important lessons:

• Target your ads to improve performance. Reuters said that while Microsoft’s acquisition failed, Google’s purchase of display ad company DoubleClick worked in part because the search giant used its technology to deliver more relevant ads through better targeting.
• Keep pace with innovative ad offerings. You don’t want to be in the position of the US newspaper industry which now captures less than a percentage of digital advertising than they did a decade ago. Many advertising innovations have come from outside of the news and media industry. It’s important to make sure make sure that your advertisers aren’t lured away by these new digital competitors.
• Consider affiliate sales and marketing. Digital can connect an interested buyer with a seller in ways that weren’t possible in other media. Buyers can easily click from ad to purchase, and if you drove them to buy, then you’ll want to capture your commission.

Digital media doesn’t simply change your editorial opportunities, it also changes your advertising opportunities – and challenges. To make the transition to a sustainable digital news organisation, you’ll want to innovate in your advertising and sales just as your newsroom makes the effort to innovate editorially.

Reuters reported that overall in the US, digital advertising revenue for newspapers grew only 1% in the first quarter of 2012, making it their fifth consecutive quarter of declining digital advertising revenue, according to the Newspaper Association of America. At the New York Times, digital advertising dropped by 2.3%, but it was much worse at the Washington Post, which saw digital advertising plummet by 7% at its flagship newspaper site and also Slate.com.

A flood of excess advertising space, the rise of electronic advertising exchanges that sell ads at cut-rate prices, and the weak U.S. economy are all contributing to the slowdown, publishing executives and observers say.

However, this is not just about US newspapers getting lower rates due to a glut of advertising inventory or the downward pressure on rates due to advertising exchanges. US newspapers actually capture a smaller slice of the digital advertising pie now than they did in 2003. While digital advertising revenue has galloped ahead rising from $7.3bn to $31.7bn in 2011, US newspapers share of digital advertising has hit an all-time low. In 2003, newspapers managed to capture 16.7% of all digital advertising in the US – not a great number, but respectable. However, by 2011, US newspapers managed to grab only 10.3% of digital advertising

Why are newspapers capturing less of the digital ad spending? Reuters says that while newspapers used to be one of the best ways to deliver an audience to advertisers, the industry doesn’t have the same advantage in the digital content market that it had in print. From Reuters’ analysis:

Advertisers “are buying audience instead of context and they don’t care what sites they are on,” said Gordon McLeod, president of Krux, a company that helps websites interpret data.

The lessons for news organisations making the digital transition in any country is two-fold. The first, that we’ve mentioned previously on the Knowledge Bridge, is that advertising shouldn’t be the only source of revenue for your digital business. Most companies that have succeeded in digital have done so by building a range of digital sources for revenue including dating services, digital marketing services, events and even niche digital services such as holiday-home booking businesses.

Secondly, as Rick Edmonds at Poynter pointed out, news organisations have been urged to stop selling their advertising inventory through ad exchanges. Instead, news organisations should develop ways to develop more targeted ads and develop other “premium-priced ad placements”. Fundamentally, the lesson is that advertising innovation is as important for your long-term sustainability as editorial innovation.

Action Points

• Groupon’s success triggered thousands of imitators worldwide, setting off ferocious competition that makes it almost impossible to launch a new business based on its model.
• This intense competition is setting off a round of consolidation amongst Groupon-style sites.
• A new model, daily deal aggregators that pull together deals from across Groupon-style sites, is proving to be as successful if not more than the individual sites.

Groupon, the group-buying, daily deals service, is the start-up that has launched thousands of clones around the world, not to mention the largest internet IPO since Google, at least until Facebook debuts on the markets.

Groupon merged previous business models – coupons and daily group buying – into one of fastest growing businesses in history.

For those encouraging news organisations to pursue innovation, they saw Groupon as yet another missed opportunity by news groups to develop a new source of revenue for the digital age.

In 2010 in the early stages of its rapid rise, Tyler Mark, writing for the International Newsmedia Marketing Association, said this of Groupon and newspapers:

“The challenge that this represents to newspapers is bigger than the US$6 billion Groupon is valued at. The point is that in the last two years that newspapers have been struggling through, a dot-com start-up has highlighted an area of extreme danger for newspapers: our capacity and pace of change. Namely, that it’s slow and often too cautious.”

Easy model to copy

Even before its market float, questions were being asked not only of Groupon but of its entire business model.

Detractors said that the Groupon deals might be a good deal for consumers but weren’t for the businesses, many of them local shops and restaurants, who bought them. People came for the deep discounts but often didn’t come back to the businesses to pay full price.

As for Groupon itself, critics pointed to how easily it was to copy Groupon’s business model, and you only have to look at how many clones were launched in the last few years.

However, with Groupon’s phenomenal growth rate and simple model, companies around the world rushed to cash in.

Literally thousands of competitors copied that model, and that’s just in China. In Russia, dozens, some say hundreds, of daily deal sites sprung up in 2010 during what some have called “Groupon fever”. It’s now estimated that 80% of first time online purchases in Russia are conducted through any of a number of Groupon-style businesses operating there, according to Zina.ru, a group deals aggregator in Russia.

Even smaller markets suddenly found themselves drowning in Groupon clones. From August 2010 to the present, between 120 and 130 Groupon clones launched in Slovakia, according to L’ubomir Jochim, the director of projects for SME daily at publishing company Petit Press.

“Anybody could buy a ready-made solution for about €200 to €500 and could start a groupon portal,” Jochim said. Eager young entrepreneurs in the Slovak Republic and the Czech Republic rushed in to take advantage of the group deals gold rush. So many group deals sites were launched that Groupon has now become a generic term for such businesses.

Despite the intense competition, Petit Press saw an opportunity to launch its own Groupon portal targeting three lucrative market segments including travel bookings and restaurants, which account for 50% to 60% of the revenue for Groupon-style sites in the Slovak Republic, Jochim said.

However, due to some internal changes at the company, the launch was delayed and by November of last year, it was decided to launch a group deals aggregator, zlavy.sme.sk, rather than another group deals site. Aggregators give consumers a one-stop site to see deals from across the dizzying number of group deals sites that have been launched. For instance, in Asia deal aggregator All Asia Deals allows you to quickly search for deals by type and country. SME benefited by being one of the first deal aggregators to launch in Slovakia.

For Petit Press in Slovakia, the deal aggregator generates revenue from three sources, Jochim said:

• Revenue from “clicks made by visitors”. They are paid 10 to 20 cents per click on each deal from other daily deal sites.
• Revenue from commissions for the purchases made by visitors to the deal aggregator.
• Revenue from display advertising, although this is only a minimal source of income for the aggregator.

Group deals aggregators have many business models, Jochim said, adding that some generate 80% of their revenue from clicks or impressions and others make 80% of their income from commissions on the deals.

Petit Press used its daily newspaper SME and its news portal SME.sk, the third most visited site in Slovakia, to promote the deals aggregator. They focused most of their efforts initially on online brand campaigns because their experience is that print campaigns for online projects aren’t effective, Jochim said.

After the launch, they shifted from brand advertising to product campaigns, using special widgets on SME.sk to promote deals. The combination of self-promotion on zlavy.sme.sk and offers from daily deal portals have been really successful, Jochim said. They have seen double the click-through-rates on this form of advertising versus standard banner campaigns.

Success depends on the situation in the market, the chosen model of the front-end of the aggregator and market position of the aggregator with respect to its competitors, he added. “I’m sure that our profit from the aggregator is much higher than the profit of any top Groupon portal in Slovakia.”

However, it should be noted that aggregators work best at a national rather than local level, so it might not be a solution for local publishers.

The future of the group deals business

The Groupon model has some problems that must be solved, Jochim said, and any company thinking of entering the market must be aware of them:

• There were many bad deals, and some users were disappointed, especially with deals from restaurants.
• Many users also bought too many coupons, many of which they didn’t use.
• For a Groupon-style portal to work in the long run, it must guarantee some basic support for customers and refund money for the coupons that are purchased in case of problems.

To address these issues, group buying sites are in the process of creating an international marketing association, the Global Daily Deal Association, which has created a code of conduct and a seal of approval that the association hopes will give customers confidence in the services.

Just as importantly, “Groupon portals have to create deals that aren’t only advantageous for them but also for their partners,” Jochim said. The Groupon portals have to create a win-win situation, creating benefits for customers, business partners and the portals themselves.

Due to the rush of groupon clones in Slovakia, Russia and elsewhere, we’re already seeing consolidation. Already, Jochim estimates that only about half of the 120 or 130 Groupon portals launched since late 2010 are still in operation in Slovakia.

Many of these smaller sites aren’t simply shutting down but are being acquired by bigger players either in the country or region they serve. In the Baltics, Cherry Media recently acquired Latvia’s CityLife, which now gives it 50% or more of the group deals market in Estonia, Latvia and Lithuania. In Russia, leading group deals site Biglion bought Belorussian site Bongo.by.

In most markets the time for launching new standalone deal portals has probably passed. Jochim now sees very little chance for new daily deals businesses to be successful in markets like his. Competition is intense due to Groupon fever, and start-up costs are high due to marketing and sales expenses.

However, the group deals aggregator might be a revenue-generating alternative, and the model is positioned to weather consolidation in the sector well. Jochim says that the deal aggregator has been one of the most successful internet projects Petit Press has launched in recent years. The aggregator launch has been so successful that the company is considering other types of discount-driven businesses outside of the Groupon portal model.