Ted Leonsis, Groupon vice chair, American Express board member and Internet pioneer, emphasized the importance of scaling for local in a global economy during a keynote at ILM East yesterday. “Indiana really matters. India matters more,” said Leonsis, pointing out that for larger companies, most growth will come from outside the U.S.

The way that growth is measured, however, is rapidly changing. “I try to follow the new currencies: time, attention and clickstreams,” he noted. “Now you see payments in pixels, Facebook newsfeeds, or points and rewards. AmEx has trillions of points.

While growth for “the biggest companies” comes from serving the entire international marketplaces, local needs are universal.

“I love local; we built Internet on businesses created about ‘you,’ ” said Leonsis. “There is no bigger business imaginable.” He noted special opportunities in “MoSoLo….the convergence of mobile, social, video.” Mobile will make up 88 percent of digital advertising, he suggested, citing analyst projections. “One thousand cities are ready for MoSoLo.”

Leonsis believes that the largest companies will soon be making spending sprees in the local arena. Local entrepreneurs should realistically shoot for selling their companies because only a couple of companies end up IPOing in the public market, added Leonsis, who is, of course, a major investor.

Leonsis noted that the largest companies such as Google, Microsoft and Cisco are sitting on almost a trillion dollars of retained earnings. “That’s pent-up cash. They will want to fill in their value chains.”

Channels are also changing, and quickly. Email usage is way down and has “become a deliverer for e-commerce push. Email is for manicure or pedicure deals,” said Leonsis, noting that Groupon and Facebook are really poised to leverage this with their massive email lists. Phones, meanwhile, are for texting. The average teen sends 70 texts a day and barely use any minutes to talk.

But Leonsis predicts that video will emerge as the new killer app as it becomes the core medium for self expression and sharing. “The YouTube phenomenon is truly amazing. We’re all becoming cable MSOs.”

Video also will be key to the future of retail and education. Retail site visitors who view video are likely to stay on site two minutes longer on average and are 64 percent more likely to purchase than other site visitors, said Leonsis. Video is a foundation for “next generation commerce.”

The pursuit of closed loop network is the really big game here, Leonsis noted. Amazon has made everyone an affiliate and a reseller. Similarly, PayPal made made everyone a small business with 100 million-plus accounts for money transfers and payments. EBay has made everyone an entrepreneur.

Moreover, Google has 8 million advertisers on file, and invoices 20,000 advertisers. AmEx has developed a closed loop system of its own, and Groupon has created “curated local commerce.”

But Leonsis is skeptical that the world of interactive local commerce is something that start-ups can gain traction in. “No one will give an eight-person start-up their social security number. Payments are not for the faint-hearted. Start-ups are better off looking for margin opportunities.

“I don’t want to see any business plan saying ‘I’ll be the next Groupon.’ Verticalization happens.”

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ILM East keynoter Ted Leonsis, in a BIA/Kelsey pre-conference webinar, proclaimed a “new generation and reinvigoration of local products.” The new opportunity in local is “where social, video and mobile intersect,” Leonsis said.

What surprises Leonsis, who currently serves as Groupon’s vice chair and a board member of AmEx, is that VCs and entrepreneurs are correctly focused on local opportunities, but traditional local media don’t seem to believe in their core local products.

Newspapers and other local media are budgeting for covering the Olympics and the presidential election, “but there are so many ways to get national news,” noted Leonsis. Meanwhile, if you want information or news about where you actually live — say, Potomac, MD, where Leonsis lives — you need to go elsewhere.

In this climate, American Express, with 5 million or 6 million local touchpoints around the world, is a major conduit to the small-business community, noted Leonsis. And a company like Groupon has absolutely “hit it” out of the park. “They have very compelling local offers in real time.”

Groupon is a “much bigger idea” than a simple directory or city guide or newspaper, added Leonsis. “It creates marketplaces for socially astute audiences” — an effort that Leonsis dubs “curated commerce.” “It’s a good example of social commerce,” he said.

Groupon also has proved to be a great friend of SMBs. Four years ago, during the financial crisis, banks had stopped lending to SMBs, and here comes Groupon asking for no money down and providing cash for products that are redeemed over many months. “Groupon’s helped float a lot of SMBs,” noted Leonsis.

Leonsis sees Groupon solidifying its hold on the market, as other companies begin to contract. The deals marketplace “is easy to enter but really hard to scale and be successful,” he said. “It’s hard to open offices in 500+ markets, build a database and create demand.”

If you are not Groupon, Leonsis added that the way to go may be to focus on verticals. Companies didn’t take on Google in search. They went to vertical niches. “They’re verticalizing shopping experiences and connecting with marketplaces,” he noted.

For a replay of the webinar, click here.
For access to the webinar deck (and a special promotional rate for ILM East, click here.

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It’s safe to say that Ted Leonsis is at the center of the local revolution. He’s done it all, from his early days trying to jump-start e-commerce at Redgate, to his work building a local framework at AOL (i.e., MapQuest, Digital City, MovieFone, Studio Now); to his current role as vice chair, Groupon; board member, AmEx; a principal with the $450 million Revolution Growth Fund; and, of course, as owner of the Washington Capitals, Washington Wizards and the Verizon Center.

What is Ted’s Take on key local issues? We’re talking live with Ted Monday at 3 p.m. Pacific/12 p.m. Eastern in conjunction with his keynote at ILM East in Boston, which takes place March 28.

Sign up for the free webinar. Registrants also get a discount code toward the conference, which is March 26-28.

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Universities stimulate major business zones in various cities. So do airports. Hence the Dulles tech corridor in D.C. So does the success of major companies.

People leave with their stock options and develop their own companies. Witness Wang in Boston, Microsoft in Seattle, AOL in D.C., Qualcomm in San Diego. Too many to count in Silicon Valley. Qualcomm alone has led to at least 500 wireless companies in San Diego.

But the impact dies down after a while, and local development slows. That makes it harder for a market to recruit quality engineers and other positions to the area.

Now, two former AOL principals, Steve Case and Ted Leonsis, are seeking to reinject the infusion of cash that AOL once provided for the D.C. metro area.

Case and Leonsis — interestingly, competing investors in LivingSocial and Groupon, respectively — have announced a $450 million Revolution Growth Fund to jumpstart the D.C. area’s technology start-ups, and, they hope, find the next “LivingSocial.”

Both men have been major philanthropists in the D.C. area, but this, of course, is also a major business initiative.

Leonsis — owner of the Washington Caps and Washington Wizards, vice chair of Groupon, board member of Amex, investor in SB Nation, author of “This Business of Happiness” — is keynoting ILM East, which is taking place March 26-28 in Boston. Can’t get enough AOL nostalgia? Former AOL Time Warner President and current CEO of Clear Channel Entertainment Bob Pittman is keynoting the great lineup at ILM West Dec. 12-14).

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SB Nation (Sports Blog Nation) presents a fan-centric, highly verticalized (i.e., local) view of sports from dozens of bloggers. The site has completed a new $10.5 million “C” round of funding, pushing it past the $23.5 million mark.

The new round is led by Khosla Ventures, and includes Accel Partners and Comcast Interactive Capital, which had also invested in earlier rounds. SB Nation has also received funding from Allen & Co. and angel investors such as former AOL executive Ted Leonsis.

The site, which launched in 2003 and now has 290 topical sites and 21 regional sites, is run by former AOL exec Jim Bankoff. AllThingsD reports that the new funds will be used to boost SBNation’s technology platform, its bloggers, mobile, local, advertising sales and a few relevant acquisitions.

Bankoff will be interviewed on a one-to-one basis at the upcoming ILM:10 show in Santa Clara. Investor Michael Yang from Comcast Interactive Capital is also appearing at the event.

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The Groupon deal-a-day model — “no money upfront, but we’ll take up to 50 percent of the coupon value” — has been met with high satisfaction. Groupon’s internal data show that 97 percent of participating SMBs want to do it again.

But the model has been taking real heat this week from some SMBs on the blogosphere. The complaints largely center on their poor judgment. Specifically, they hadn’t established a ceiling on the number of Groupons that can be sold. This can pose a real problem for SMBs, which are typically willing to take a loss on every coupon to build their business but can be drained if too many money-losing Groupons are sold.

Other allegations are circulating about unscrupulous businesses that manage to get onto Groupon. Specifically, a photographer in Atlanta offered a deal that was too good to be true, and uneconomical. While it isn’t clear what advantage this business got — other than some upfront cash for a portion of the deal — it does suggest that Groupon’s promise to carefully vet every business that it works with may have gotten stretched too thin by its rapid growth.

The recent hubbub started with a post by Posies Cafe in Portland, Oregon, which agreed to offer $13 of food for $6. It did so after a Groupon rep advised the owner that Groupons do better when they are discounted more than 50 percent. But Posies was unprepared for the avalanche of Groupons sold to Portland consumers, who bought 1,000 Groupons and overran the little upscale cafe for several months. Ultimately, Posies’ owner said she suffered such extreme losses that she had trouble paying her rent and her staff.

“It has been the single worst decision I have ever made as a business owner thus far,” she wrote on the Posies blog this month, saying she was down $8,000 in total — apparently after subtracting food and service costs, and the costs of Groupon redemption.

The math here is kind of interesting. While Posies would normally lose $7 of the face value of a $13 Groupon, and Groupon would then also eat $3 of the $6 Groupon — the loss was even higher. Apparently, Groupon keeps all the revenues for Groupons priced under $10.

Objectively, it still isn’t clear why a promotion costing $10,000 would have such a catastrophic effect on the cafe. In many cases, consumers typically spend well in excess of the coupon value. Moreover, the cafe would theoretically be able to cut back on advertising during this period.

Still, the troubles at Posies Cafe struck a nerve. At the very least, it suggests that certain finite service providers are not ideal users of Groupons.

Still, we believe that deal a day is a touchstone for local online commerce that is going to have a major effect on SMB marketing as it continues to evolve. We especially like what Groupon investor and former AOL EVP Ted Leonsis said on his blog in a post titled “Victims.”

“In the last ten years, two new methods have emerged to help small businesses become successful: Targeted search marketing from people like Google where you bid and pay for targeted search words and clicks and now social shopping sites a la Groupon. Both methodologies are accountable; are focused on geo-served audiences; can be used creatively; and can drive traffic into stores or make the phones ring. And best of all small businesses only pay when the programs work.

“And more and more these programs really do work. Your neighbors want to support you. They want to sample your wares. They want to come in and buy from you. Group couponing is a powerful tool and a positive breakthrough for small businesses.”

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