As it turns out, the daily deals landscape is more sophisticated than many first thought. New contours are emerging, each replete with opportunity and threat. Bluntly branding the space as “the next big thing” or a “can’t-miss opportunity” lacks the necessary strategic discernment in an industry replete with competitors and fortressed with high barriers to scale. Similarly, the question of whether the deals explosion is leading Silicon Valley toward the brink of tech bubble 2.0 requires more than a “yes” or “no” answer. “It depends” is more like it.

A stage-full of bankers and investors debated this topic at the recent Daily Deal Summit in New York without reaching much consensus.

On the one hand, leading group buying brands such as Groupon and LivingSocial are radically altering local advertising and marketing by touching local merchants with a direct, trackable customer acquisition tool that verifies ROI … all without the burden of upfront costs. There are merchants aplenty yearning to draw new business without the traditional media headaches of lofty price points and fuzzy metrics.

BIA/Kelsey approximates that there are at least 10 million SMBs in the addressable advertising pool. James Min, head of media banking at Montgomery & Co., noted that even if Groupon and LivingSocial are building sales armies, that still leaves “a lot of greenfield opportunity” for other originators and media companies to participate.

Then there are the actual revenues that these still relatively young market leaders are already driving. Groupon’s 2011 revenues could reach $3 billion to $4 billion, prompting reports of a desired IPO at a $25 billion valuation. The business models and sudden returns weren’t as evident a decade ago. Real money is changing hands … quickly and compellingly. Instant, personalized and geotargeted deals surface more inventory to meet crushing demand. New revenue streams are continually opening.

On the other hand, what’s good for a few isn’t necessarily good for all. The network effects that early movers create can become bubble effects for clones and stragglers. As the market fragments and verticalizes, Ben Choi of Maveron sees entrants that want to specialize as, say, “the Groupon for yogurt.” Only a couple, however, get the requisite funding to grow at scale.

Meanwhile, Battery Ventures associate Blake Bartlett asks if targeted niches such as Groupon for yogurt create “a truly different e-commerce experience, or are simply saying ‘let’s create a better Groupon?’ ” If the latter is true, can new incremental value be generated?

Groupon and LivingSocial topple scale barriers with sales heft. For other players, partnerships are the vehicle. But two essential questions remain: What is the critical mass necessary to claim effective scale, and how many can actually get there? These questions are particularly pointed seeing as Groupon hires new sales force every day. Sales scale would multiply even more if, as Min volunteered, they acquire a Yellow Pages company out of bankruptcy after filing their IPO. “Someone’s going to buy one of them, and it’s going to be an Internet company.”

Where do you fall on the deals market: frothy, robust or somewhere in-between?

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In two short years, LivingSocial has blossomed from a Facebook application development shop into a leading group buying platform in 230 markets and 12 countries. But the question du jour in deal a day isn’t “what have you done?” but “what’s next?” At ILM East, LivingSocial Chief Operating Officer Eric Eichmann mapped a diversified plan that includes instant deals, new verticals and increased segmentation.

LivingSocial is currently testing Instant Deals in its hometown of Washington, D.C. Flash sales are uploaded onto a mobile app and allow merchants to push specific goods or services in time-sensitive windows (e.g., “half off lunch for the next three hours”). Instant utilizes all four of the company’s “pillars of success”: local, mobile, social and commerce.

Eichmann shared social statistics that are particularly striking. For instance, during LivingSocial’s highly successful national deal with Amazon, 40 percent of purchases were a byproduct of link sharing. There were 185,000 shares on Facebook alone.

Moving forward, Eichmann and team think they can continue to leverage “discovery and surprise” to delight customers. Notably, this is manifesting itself  in Escapes, a higher-touch, more considered set of experiences that grow out of the company’s acquisition of Urban Escapes.

Also, look for LivingSocial to continue to segment deals geographically, burrowing into smaller districts and neighborhoods based on customer propensity to shop close to home. It’s already experimenting with sub-metro segmentation in markets such as D.C. and New York.

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It’s hard work distilling 20,000 people, hundreds of sessions, droves of start-ups, seemingly endless parties and even a Mike Tyson cameo into a cliffs notes recap of SxSW Interactive. Not that anyone is shedding any tears for me. America loves lists (or so I’ve heard), so here are “the big ideas” that have my brain buzzing post-Austin.

1) The Check-In Gets an Ego Check: Kudos to Gowalla’s Josh Williams, cofounder of a company that has leveraged check-in fascination to fund and fertilize the business, for reminding the location-based services space that check-ins were originally designed as means to greater value, not as ends unto themselves. When misconstrued, badges, passport stamps and other social rewards that fail to tell a more compelling value story (whether tangible, personal, philanthropic or other) can become a hindrance rather than a facilitator. “We’re drinking our own Kool-Aid,” Williams admonished.

So what does “getting real” really mean? Not a lot of concrete nuggets were offered. Perhaps it’s being able to tell a larger, more colorful personal and social narrative around places you’ve been or communities you’ve interacted with (the Gowalla idea). Maybe it’s about social recommendations that blend local places with friends’ activity (hello Foursquare). Maybe it’s gamification for larger social good (see Seth Priebatsch’s grand plan to use game mechanics to fix education). Or maybe its something else. But it’s not check-ins … not long-term, at least.

2) So, This Whole Deal-a-Day Thing May Be MUCH Bigger Than We Thought: Actually, many of my colleagues have viewed group buying as a local commerce game changer since its earliest days. But the deals session at SxSW, particularly a slide from Yipit’s Jim Moran, brought this burgeoning ecosystem into sharper relief.

I’m well aware of the critical places that deals sites, white-label providers, verticals and aggregators hold and can feel the rising demand for data to justify the opportunity for publishers. Exchanges were a natural as the space grew. But there is also real potential in merchant services, consumer services and merchant agencies. These are largely new doors to be unlocked. There may be more opportunity in b-to-b deals as well, where promising rollouts are limited (Business Insiders’ Pipeline, for one).

The next nuts to crack: better merchant care to boost customer retention, self serve that’s truly accessible (Groupon’s merchant center hasn’t exactly caught fire) and, for publishers, tighter integration of deals into brand content (not as blunt ad units).

3) Won’t You Be My Neighbor?: Maybe, if I knew where the neighborhood started and stopped. Much of the future of the mobile-social intersection hinges on definitions of, and ability to utilize, location. Sounds mushy, huh?

To paraphrase NeighborGoods CEO Micki Krimmel, technology has been great for building affinity and interest groups, but can it be equally useful in fostering local connections? Foursquare and others are beginning down this path with their location + social recommendation engine, but the layer that NabeWise CEO Ann Baldinucci says is missing is the one that “sits above property listings and addresses to tell you what a community or neighborhood is all about.” That is the context wrapper that is largely absent.

Joe Stump from SimpleGeo noted that the demand for neighborhood-level data is fervent, but limited in its application if no social context is connected to it.

4) Twitter Saves Linear TV!: Well, maybe not singularly save it, but it certainly can provide a boost. Chloe Sladden, Twitter’s Director of Media Partnerships, shared anecdotal evidence that integrating second screen activity with live, linear event programming can enhance the real-time appeal of a show (i.e., DVR can’t replicate the dynamic social experience users have when connecting over a live show).

Interestingly, Gavin Purcell, the supervising producer of “Late Night with Jimmy Fallon,” foresees a new job title growing around second screen experiences. Essentially, this person will extend the role of the community manager cross-platform to connect big screen and second screen interaction.

Many local broadcasters are already effectively utilizing Twitter in their newscasts by soliciting audience questions and surfacing story ideas. Now, can they extend the experience to a second screen to create more dynamic conversation?

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Last year, a deal-a-day panel at SxSW Interactive might have been relegated to a satellite campus (read: off-the-beaten-path Austin hotel). Two years ago, it may not have existed at all. But in 2011, group buying is a $1.2 billion market (according to us), and attendees packed a convention center ballroom to explore how the deals ecosystem would evolve next.

Much of the business interest in group buying gathers around the inviting notion that barriers to entry are virtually nonexistent. While that may be true for product launch, growth and sustenance are another story. Yipit cofounder Jim Moran framed it this way: “The barriers to scale are high, and that increases the virtuous cycle among the large players.” That’s exactly why some consolidation among destination sites is both necessary and inevitable.

A profitable deals concept can be cultivated, but not capriciously. Jonty Kelt, CEO of white-label Group Commerce, advised the audience that deals must be positioned as an extension of brand content. Treating deals as blunt ad units can disrupt brand consistency and dilute customer receptiveness.

DailyCandy, the trendy, female-focused urban newsletter, is an instructive case in how to stitch a deals offering with the brand fabric. Across its 12 metro properties, DailyCandy Deals has enlisted more than 3 million subscribers. GM Tricia Han credits an established brand relationship with its audience. “We have 10 years of experience in curating local businesses and experiences. People trust us.”

Interestingly, Moran pointed out that Han is a product manager rather than a sales executive. He then noted that this is true for many of the biggest publisher success stories (Travelzoo, Thrillist, The San Diego Union-Tribune).

Where deals companies have caught the most grief is in merchant care, with Groupon, LivingSocial, et al, fighting doubts about their ability to grow into customer retention channels that establish them as long-term SMB partners. LivingSocial cofounder Aaron Batalion refuted that notion. “We’re hiring people to help the merchant, to even teach them about their own business. We want to learn about their average ticket price and receipt value” so that the right deal is created.

Moran showed perhaps the most interesting slide, a visual representation of the numerous layers that are now stacking onto the original deals sites. The result is a more complicated, but potentially opportunity-rich ecosystem.

Beyond destination sites, white-label providers, publishers, vertical sites and aggregators, Moran also highlighted merchant services (Genbook, SinglePlatform, Closely), consumer services (CityPockets) and emerging bid-based offer exchanges (Adility’s OffersDB). In addition to aggregation, Yipit also runs a healthy data business. In other words: it’s a much bigger playground than just Groupon and LivingSocial, with diverse opportunities to participate.

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Last week, the latest spree of entrants forayed into the deal-a-day arena, with AT&T and The New York Times announcing group buying platforms that appear to be almost identical to those popularized by Groupon and LivingSocial. The most interesting of the newcomers, however, could be Microsoft Bing, which opted for an aggregated approach through The Dealmap’s DealExchange for its Web and mobile properties.

Rather than dedicating resources against selling deals itself, Bing will instead rely on the network to source locally targeted offers from more than 300 group buying channels that open up their content to DealExchange. CityGrid Media, Local.com and SuperMedia are among the growling list (now 36) of publisher/distribution partners.

Leading search engines and portals have used different strategies to jump into group commerce. But this much is certain: They all feel the urge to play. AOL (through WOW) and Google set up their own deals platforms, while Yahoo opted for an aggregated network initiative through Tippr that resembles Bing.

As noted above, Bing mobile is also included, reinforcing what The Dealmap’s Jennifer Dulski told BIA/Kelsey at ILM West — that mobile and social commerce would make for a potent combination. Dulski noted that half the site’s usage already comes from mobile devices.

The enthusiasm over deals is well-founded, with BIA/Kelsey projecting that domestic revenues could touch nearly $4 billion by 2015, at a 35 percent compound annual growth rate (CAGR).

As the market becomes increasingly fragmented, aggregators will play a central role in both organization and distribution. DealExchange positions The Dealmap particularly well to strike partnerships, especially with the functionality it provides for the deals being sourced — location, price, sentiment and time (all part of its “relevance algorithm”).

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The Wall Street Journal reported this week that AT&T Interactive will join the growing list of directory companies to launch a daily deal site. AT&T Interactive CEO David Krantz told The Journal that he believes AT&T could be “fast followers” and that there is still ample opportunity in the daily deals space, initially popularized by Chicago-based Groupon. AT&T plans to offer a daily deal in each of its local markets. AT&T is reportedly developing the service with the help of a third party it has not disclosed.

Once it launches, AT&T will join Yellowbook, Yellow Pages Group (Canada), PagesJaunes, Direct West and Sensis on the list of Yellow Pages companies with group buying products. Directory publishers see group buying as an opportunity to increase sales volume, sell off cycle and appeal to businesses that are not core Yellow Pages advertisers, like specialty retail, higher end personal services and dining establishments.

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The French directory publisher PagesJaunes has joined the growing list of global Yellow Pages companies that are building or buying their way into the deal-a-day space. PagesJaunes has acquired the French group buying site top-deals.fr, and has rebranded the product as 123deal to be consistent with its 123people online people search brand.

We recently reported that the Australian publisher Sensis has launched its own deal-a-day product, joining Yellow Pages Group, DirectWest, Yellowbook and other publishers with similar offerings.

The logic for publishers is simple. Directory companies see deal a day as a promising new revenue stream, as well as an avenue into new or deeper relationships with advertiser categories that are not traditionally strong in print Yellow Pages, specialty retail and fine dining among them. Plumbers and remodelers are less likely to do a deal on Groupon or one of its clones than a gift shop or an Ethiopian restaurant.

The challenge for PagesJaunes and others is building a base of consumers large and engaged enough to tip deals. We think PagesJaunes may have a better chance than most Yellow Pages companies, given its strong brand in France and its track record for building strong consumer experiences.

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Angie’s List, Kudzu and The Washington Post’s new ServiceAlley are providing group buying promotions for home and trade services. But is group buying the right paradigm for home and trade services?

Regional Help Wanted Cofounder Eric Straus says no. Instead, Straus has launched 10LocalCoupons.com, which offers home and trade services the ability to include their coupons in an e-mail flier featuring 10 coupons. The coupons are created on a self-serve basis and cost $49 per month.

Straus believes the deal-a-day space has gotten too bifurcated with too much competition. It also has a difficult model to understand, and doesn’t really hit the sweet spot for home and trade and other “Valpak” advertisers. “These are really DM dollars,” he says. Moreover, a straightforward coupon allows for more inventory than a main deal and two sides — the stock in trade for group buyers.

Indeed, Straus says his “Digital Valpak”-like service can reach more consumers, in part by building out a consortium among local media players, who each benefit from each other’s participation. As with Regional Help Wanted, consortium members split the proceeds equally, and promise to promote the service on air (or on cable) with a certain number of remnant ads. Greater responses lead to more revenue.

In Des Moines, for instance, Clear Channel, Citadel and Saga radio stations are participating, as is MediaCom, the local cable company. Although the site is still in beta, it is currently operating in more than 110 markets, says Straus.

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The interrelationship of daily deals with TV and radio stations and newspapers intrigues us with potential. While not a big factor, traditional media companies can parlay their brand name, promotional power, sales forces and Web sites to reach new merchants that never would have otherwise advertised with them.

Second Street Media, Tippr, TownHog and a host of others are among daily deal white-label companies focusing on broadcasters. San Diego-based Deal Current has also been working with broadcasters such as the Journal Broadcast Group among the 66 markets that it is operating in. Now, via a partnership formed with Triton Digital Media’s Loyalty Division, it will be in position to power some of Triton’s 700+ radio clients.

Triton and Deal Current are pitching a package where broadcasters and marketers can keep most of the deal revenues between themselves, with just 5 percent of revenues assigned for sales, tech and administration (plus processing fees, which are roughly 3 percent). The daily deals package is an optional part of Triton’s “StickyFish” program, which includes loyalty features such as contests, surveys, games and other content.

Triton Loyalty President Chris Bell tells us that Triton and Deal Current can afford to take a smaller chunk from commissions because it already has the relationships in place with the stations. “There is going to be a lot of pressure on margins,” he says.

Bell says Triton and Deal Current’s role with the stations primarily taps their technology and expertise for selling deals and sending out e-mails. While the stations are not contractually obligated, it is certainly in their interest to also promote the deals on air, and extensions such as their Web site and social media, he adds.

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Local.com, which recently introduced an integrated coupon and sales platform as part of its relaunch, has announced that it will enter the group buying/deal-a-day space via the acquisition of iTwango, a Los Angeles-based start-up that launched in October. The company, founded by former Citysearch CTO Hal Oreif, will be rebranded under Local.com.

The company’s first group buying products for Local.com will be rolled out in mid-2011. They will be supported by Local.com, its various hosted sites, and its network of 1,000-plus local and regional media sites. These sites can add the deals site on a white-label basis, pitting Local.com directly against such companies as Tippr.com, Nimble Commerce, Deal Current and others. At the same time, the deal network will be built up with telesales and e-mail marketing.

Local.com CEO Heath Clarke says that the Local.com diligence team was impressed that iTwango was built “almost as an exchange” that can easily funnel coupons through the platform and publish to the Local.com search engine.

The whole point is to provide a broader range of services, adds Clarke, noting that group buying is a perfect fit with Local.com’s directory, its coupon and deals platform, and and its Octane 360 optimization service. “We can sell through some of those on a wholesale basis.”

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