Hearst plans to launch a daily deals service later this summer, starting with offerings targeting the subscribers of Road & Track and Car and Driver. By the end of the year, the company plans to be selling group deals for all its magazine brands.
Hearst is partnering with Group Commerce, the company that provides platforms for brands such as Thrillist and DailyCandy.
We spoke with Vinicius Vacanti – an expert in the space and founder of Yipit, a service that finds you great local deals by learning your tastes – to get his thoughts on whether Hearst can turn this Groupon clone into a viable business.
His answer? In a word: yes. In four, it could be big.
Vacanti, who hopes the daily deals model succeeds since it will be good for his startup, tells us that the largest barrier to daily deals startups is acquiring a customer base. Hearst already has this, so their difficulty will be converting a magazine’s readers into purchasers.
“The biggest challenge is convincing the audience that this is a good deal. Groupon does that implicitly because it’s a group-buying platform,” he says. “For the reader, why should they believe that the magazine is giving them a good deal on this product? I think what’s really important for these media companies is to be very clear and explain why this is a good deal. How did this deal come about?”
“If they can convince their readers that this is a service, not an advertisement, they could do very well. They need to say something like, ‘All of you readers are buying the same set of goods. We’re going to go to those providers and convince them to give us a deal so that you’re getting a deal on things you’re already buying.'”
Hearst could face problems of location and scale, however, as Vacanti says daily deals works better on a local level than a national one. It would be a better business model to have 800,000 readers in New York (sort of like this?) than 800,000 scattered around the country, but it’s not a dealbreaker. There are some categories such as travel that have fared well on a nationwide scale. Hearst is betting that cars will translate across the country.
Group deals are a cheap business with huge upside. The expenses are minimal – sales people to secure deals and technology costs from Group Commerce. Vacanti thinks the company will only need to sell “in the hundreds” for the initiative to be in good shape financially. Hearst should be able to convert that many readers into buyers without much trouble.
In the end, of course, “it all comes down to execution.” Considering the model is there, the technology exists, and the overhead is low, it’s hard not to see the magazine company finding another revenue stream. Expect a deluge of deals in the near future.
“If this works for Hearst, then you are going to see every magazine in the country do a daily deals,” Vacanti says.