Swords and Shields in the Merchant Economy

This post was originally published in TechCrunch in Oct 2011.

“The American Dream,” loosely defined, is made up of a few building blocks. The right to life, liberty, and to pursue happiness. The opportunity to advance, whether through education, sport, entertainment, or enterprise. Perhaps have a family, live in a house, run your own business.

Over the past ten years, for a variety of factors, the pursuit of the American dream got significantly harder. Home values have depreciated. It’s more competitive to get into schools. Pinks slips are flying off the copying machine. For many, the dream currently seems elusive.

I’d like to focus on one slice of the dream: The ability to run one’s own business. Let’s leave aside venture-style businesses for a minute to focus on local merchants. Enterprising individuals and families across the country typically raise funds from friends, family members, and local banks to open their own local businesses, in part motivated by the opportunity to hold equity, reap profits, and exert more control over their lives. Perhaps household income takes a little hit, but the family can vacation when they want to and make more of the kids’ soccer games.

I don’t mean to suggest this all happened smoothly. The local bookstore got squashed by the mega-bookstores, which in turn got served by the endless reach of web retail, which is now currently under threat by social and interest networks. We all know what happened to the small, medium, and large merchants here. No matter how many gimmicks each type of store could experiment with, the fact is that many of them couldn’t compete against the scale and price sensitivity of the Internet. They didn’t have tools to learn more about their customers. And, as a result of these external forces, the transformation of the economy, and the emergence of the “daily deals economy,” many merchants were put on the defensive, scurrying to survive.

Mercifully, within the last few years, networks and tools have emerged that offer great hope to small, medium and large physical businesses alike. This is often referred to the as online-to-offlineredemption loop, broadly speaking, the idea that networks, new media, and targeted offers can motivate customers surfing the web or playing with their phones to visit a store nearby. The race to grab and close valuable parts of this loop has been staggering, with Groupon finally set to go public in November, with LivingSocial gaining more and more steam, and services like Square and Foursquare focusing on very narrow yet valuable, strategic pieces of the loop.

It’s infamously debatable whether or not the daily deals craze is worth it for local merchants, but we’ll have to sit tight and just see what happens. What is not in dispute, however, is that the consumer web, social media, and mobile devices evolved at a rate faster than most local merchants could keep up with. The majority of local businesses are not typically very high margin ones and, therefore, have smaller appetites for risk, so the day-to-day focus in large part is on maintaining inventory and increasing foot traffic through advertising. Therefore, today, even though running a daily deal may place acute stress on a business not prepared for it, new media companies can simply drive foot traffic, and that prospect alone will likely make any merchant in a competitive situation seriously consider it.

In a local context, we are smack dab in the middle of a “daily deals economy” that’s here to stay, whether we like it or not. And, offers are going to get more and more targeted, based on a variety of customer and merchant inputs, such as time of day, inventory, and repetition.

Now that we are beginning to understand this world a bit better, I’ve noticed an interesting class of new products and services from startups nationwide have emerged to help local merchants better manage their businesses. This is what I refer to as the “merchant-side economy,” where new companies are developing suites of offensive and defensive solutions to help merchants capture more information, optimize traffic, and manage inventory.

In this “merchant-side economy,” entrepreneurs are building products and services as “shields” and “swords” to help arm merchants to defend against fights from competition and their customers and get stronger by using new tools. New companies such as Local ResponseBizeeBeeRushRez, and ZapHour provide software solutions to help merchants manage inventory, CRM systems, and targeted offers. Startups like E la Carte offer a hardware solution, LocBox allows merchants to create and manage deals, Skipola offers digital ordering, Onepager helps businesses build dead simple websites, and Merchant Button helps merchants manage the deals they want, inverting the model entirely. (There are so many companies sprouting up, it’s impossible to list them all, but please add to the list here.)

Larger companies are, of course, keenly aware of the importance of this trend. Google attempted to buy Groupon last year, Facebook dropped into and then out of the daily deals space, LivingSocial has been catching up quickly, eBay acquired Milo, Square built Card Case, and even one of the biggest retail chains in the world, Walmart, got into the game by acquiring Kosmix. As media attention shifts from television tubes to new media and mobile channels, retailers have more options to grab online traffic and convert it into real foot traffic, and once they are in the store, startups likePrism Skylabs and Shopkick can help create new in-store experiences.

These are the swords and shields in the new merchant-side economy, products and services that help store owners handle the daily deals economy, compete for foot traffic, capture more information about existing and potential customers, and leverage the scale and precision of new media companies to provide better consumer experiences and, hopefully, to keep that one very important slice of the American dream from fading forever into the darkest shadows cast by the growth of new Internet media, advancements in technologies, and the harsh realities of globalization.