By Allan Maurer

VIENNA, VA – Google rose to great heights essentially by “selling leads.”  Don Rainey, general partner with Grotech Ventures, says that Grotech’s portfolio company, LivingSocial, through LivingSocial Deals, and its competitors, such as Groupon, are doing the same thing.

“That’s the reason they’re getting the lift they are,” Rainey tells us. DC-based LivingSocial has raised around $50 million just this year and is rapidly expanding its locally focused deals program. Groupon, based in Chicago, raised $135 million this year and is also expanding rapidly.

They are succeeding because they help local merchants acquire new customers and cost of acquisition is significant. “These companies are saying ‘Here’s an opportunity to buy customers.’ It can’t be understated that merchants are in a win-win situation this way.” While they offer discounts through the local group buying services, they generally offer incentives to attract new customers or fill a restaurant on off nights any way, Rainey points out.

Rainey calls localization “the last mile of commerce,” a metaphor playing on the telecom mantra about the last mile of service to the customer’s door.

While some tech news outlets “Go on and on about all the Groupon clones,” which number about 160 firms in the U.S. today, Rainey notes that if you dice the list to those with opportunities in more than two cities, “You’re down to four.” Those four include Groupon and LivingSocial deals.

It’s a massive market

“The ability to scale is part of the equation,” says Rainey. LivingSocial, for instance, added 40 cities in one day last month and has added more since. That kind of growth “Is not cheap,” Rainey adds, but says LivingSocial is doubling in size every 60 days. “They started the year with 50 employees and they’ll end with 500.”

“It’s a massive market,” Rainey notes.  “Customer acquisition for merchants and localized commerce for consumers can support quite a few more than two companies.”

Personalization, one of the buzz words of the moment in online and mobile commerce, offers both convenience and privacy concerns. But Rainey says he thinks most people see the utility in letting sellers know “I’m male, 50 and don’t want Brazilian waxing offers.”

On the other hand, he says, “I sure want to see the ones I would buy, such as a Brazilian steak house or fly fishing advertisment.”

He says that information identifying where someone is at any given moment may be a more legitimate privacy concern than some computer having personal information aimed at hitting a buyer with targeted ads.

Mobile apps not consistent money-makers

Mobile apps are another sector where startups seem to pop up every afternoon at 3. Rainey, however, says that with some exceptions, he doesn’t see how most firms will make much money with them.

“My sense is that no one has come up with a mobile app that has made consistent money. With 200,000 apps, it’s hard to get attention. No one is willing to pay much for them. The ones making money are just another access point (a way to use an online resource on a mobile device). But I don’t know how you make a stand alone mobile app without the component pieces.

“Even games are a hits business. Most games do 90 percent of their sales in the first 90 days. It’s tough to keep producing hits. So you have no longtail running franchise, which is how most businesses survive. I wouldn’t want to make a living from mobile apps and no one has succeeded terribly well at doing so.”

Facebook needs management tools

Talking about social networking, Rainey says he thinks Facebook will, as rumors suggest, make it easier for people to decide who sees their status updates. “I have a network mix of personal and professional on Facebook,” he says. But if he has a post that is 100 percent business related, he doesn’t necessarily want to share that a friend from high school.

Providing better management tools could tighten its “stranglehold” on that space, he says.

While many Facebook users get riled up when rumors float that the company might charge for the service, Rainey says, “Once all the competition is gone, why wouldn’t they charge? With 500 million users, even charging $1 would be significant.

Cub reporters on Twitter

Rainey finds Twitter “intriguing,” but says, “It’s not at all clear to me where it’s headed and how useful it will be.”

One thing he finds difficult to take is the number of people who “Play cub reporter on Twitter. “Sen. Stevens reported down in an airplane.” If you’re in the news business, I understand that. But if you’re just some random Joe, I don’t understand the value derived from doing that.”

Another thing he’s noticed, he adds, is that he gets requests from some would-be Twitter followers who have 10,000 followers and are following 10,000 people. “I don’t know if I would enjoy following 10,000 people,” he says.

Nevertheless, Rainey says, “I think it has tremendous potential as an advertising medium,” although he believes advertising on the service will be “Twitter Controlled.”

Rainey is one of more than 50 entrepreneurs, executives, digital experts and venture capitalists participating in the first Digital East event Oct. 18 in Tysons Corner, VA.

This is part two of our interview with Rainey. See part one here:

 

Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
www.seventure.org

© 2010, TechJournal South. All rights reserved.

Tags: advertising, customer acquisition, Digital East, Don Rainey, facebook, Grotech Ventures, Groupon, LivingSocial Deals, local merchants, mobile apps, personalization, twitter