Everyone loves a bargain.

But social buying is more than Crazy Eddie with a modern twist and an added viral loop. The formula for success lies somewhere in the intersection of value, local orientation and an e-commerce system grounded in social behavior.

Successful discount and coupon aggregators have long understood that people love a great deal if it’s easy to find, is limited in availability and is simple to buy. What the social buying services added to that winning formula was the local loop, a service merchandise orientation and social incentives.

What is social buying?

Whether you call this social buying, collective buying or group buying…it’s all the same. This is an opted-in, deal-a-day local marketplace for services fueled by value and scarcity, and powered by community dynamics.

How does it work?

The core value is the daily local deal of course, but social behavior and scarcity creation come in two main flavors

1. Threshold buying as defined by Groupon

Epitomizes group buying (i.e., ‘group’ in Groupon). The deal has a threshold of participants that have to purchase for it to be good. If interested in the deal, you Share and Like and Tweet and reach out to your networks to fill the threshold.

Great deals and clever gameplay, including Groupon Bucks virtual currency makes this hold together.

2. Incentive buying as defined by LivingSocial, DealOn, BuyWithMe

Convince your friends to buy and your cost goes down. Or you get your product for free. Virtual currency incentivizes the referral process in most cases.

Same core value as the threshold approach. Terrific deals, incentives (LivingSocial DealBucks; DealOn Dollars) and gameplay drives community involvement.

These formulas seem almost too simple. But they work for both consumer and merchant alike.

My take on why social buying works:

1. Value of the deal

The deals must have significant savings on either trendy or expensive basic service items. 45% off flights of wine at new wine bar. Personal training for 50% off. Or a $400 dental exam and cleaning for $49.

Add must-have or been-thinking-about-that or never-thought-I-could-afford-it items with can’t-not-do pricing and scarcity… and it is hard to not jump on this.

2. Local matters

Forget geo-targeting as a trend as it has real utility in this model. The reason why social selling works in dense urban areas is convenience and immediacy.

This will go further as they begin to target by neighborhood, but even as a start, making sure the spa or dentist or gym is close drives the immediacy and personalization of the deal.

3. Social incentives and community orientation

This is word-of-mouth viral marketing within the context of a community-oriented and networked world.

Whether it is the threshold or the incentive mechanism, people want to share a great deal especially if it is something they can do with friends. Add Twitter and Facebook to this mix and bang…it’s just sharing fun stuff with friends, but on social media steroids.

4. Customer centric presentation

Never underestimate clear design. The daily deal-a-grams are the height of simplicity, focus and ease-of-use.

They are about you completely. No corporate baggage here. The deal is the why. It is impossible not to know how to share and transact if you have ever used a digital device. Add easy-to-understand videos and smart FAQs and there is simply no need for technical support.

Social buying is the most perfect example of social commerce that I’ve found so far and the cleanest use of social marketing in an e-commerce model either on Facebook fan pages or on the open web.

It’s like a hybrid of dynamic direct (e)mail and geo-targeted advertising. It’s smart marketing, clever adoption of social tools and an acknowledgement that commerce is a natural offshoot of community.

In social commerce, the customer is the winner

The social buying phenomenon has made discounts the new list price and the consumer wins every time.

What I like is that this has taken the idea of a consumer-centric world and made it real. And it has taken the concepts of social design and used them craftily for smart social marketing implications around e-commerce.

The consumer, and to an arguably slightly lesser extent, the merchant, are the winners in this model.

Looking ahead to the coming brand shakeout

It’s still early days for social buying…but maturing very quickly. And already the market seems overcrowded and slightly commoditized.

The mega dental deal I missed on Groupon 3 weeks ago, I just bought from TIPPR this morning (seriously!). This is great for me as the consumer of course, not so for the would be discount brand.

This commodization is a warning sign for the Groupon’s and LivingSocial’s and countless others. They need to both continually innovate, but more so, find brand value and recognition for themselves…and quickly.

My guess is that I’ll soon have a personalized deal dashboard or deal feed. Or more likely, one of my bookmarked shopping or info sites will feed all the deals to me under a brand that I have a long standing and trusted relationship with.

Like social commerce as a larger category, the social buying discount model is just getting started but I’m certain that it is here to stay. It’s just too good for the consumer.

The real question is whether the first movers and pioneers will win. Whether Groupon and LivingSocial will survive the brand shakeout and be where I find my deals a year or two out.

Sometimes the first mover wins…but in tech innovation, being the pioneer isn’t usually the same as being the winner.

Social commerce is a compelling idea that has been floating around for awhile. I first engaged with it on AVC.com (thanks Fred!) and have been thinking and talking about it as a way to explore how the community itself can become a business model.

With Facebook arguably the new desktop for the connected social world, all the reasons that fan pages should work as promotional websites for brands, make them work equally as well for social commerce. Huge population of users. Hours spent online per day per user. And social etiquette as the behavioral norm.

What is social commerce?

It is a dynamic online version of shopping with friends…but on the global, real-time Facebook stage. The intersection of community, commerce, social dynamics…and fun, where the influence and opinion of friends drives the transaction. A pure community referral-based economy.

Did this start with social media? Sort of…but I think it is important to make a distinction between social media and community elements that will make social commerce a success. Commerce will come out of community. Social is simply the design language that defines the interaction within the community.

Community storefronts as the commercial doorway for Facebook fan pages

Is social commerce and community shopping the next big leap for Facebook and the social web?

Commerce on Facebook fan pages is popping up more frequently but most pages are not really social in their orientation. More catalog than community. The Gap Lookbook and Travelocity Travel Deals are two interesting ones to check out though. But examples are scarce, and even moreso outside of the large global brands.

But I do believe that social commerce is coming like a storm to Facebook. And sooner than we think.

Three reasons why social commerce could become the new e-commerce platform for Facebook

There are no certainties but these are the top reasons why I’m a believer.

1. Shopping is a large part of socialization…and it’s mostly absent as a community activity within Facebook today. There are hundreds of millions of users spending hours online per day. Why aren’t they shopping with friends? The social need is certainly there.

Marc Pincus, founder of Zynga, created Farmville and a social gaming empire to give people on social networks something to do. Shopping is as natural as social gaming, universal in its appeal and crosses every segment of the Facebook population.

2. Social commerce as a community driven referral-economy is already working today on the open web. The best example is the exploding social selling, deal-a-day, local, discount markets.

Popularized by the Groupon and LivingSocial, scores of people (including myself) are engaging in socially-driven, deal-a-day discount local commerce. Social commerce in the guise of social selling is most certainly thriving on the open web.

Common sense indicates that this approach, adopted to a community brand strategy, could work equally as well (or maybe better) within already established brand communities like Facebook. It’s fun and social on the open web…why not on a Facebook fan page?

3. There is a natural synergy between e-commerce catalogs on the open web and Facebook. The logistics systems and catalogs are in place, all that is needed is to bring it to the community with social understanding and community dynamics. Not very simple but certainly doable.

The basic rule for businesses and marketers is to bring your product to where your customers are. They are already on Facebook in mass numbers. They are already fans of your products and services. And already referring your brands to their friends. It is time to start to figure out how to build a community-based commerce system for your fan page community.

Social commerce today is a big idea but it will become real…and quickly

In a recent post, I called Facebook fan pages the Wild West for brands and businesses. It’s still early and there are no guidelines for success. Social commerce may be even more embryonic.

Or maybe not.

Today most Facebook fan pages are boring. We Like them more out of courtesy and the need to belong, rather than the community value that we participate in. It’s hard to make them interesting because there is little to do there. For an inexplicable reason how we socialize with our friends on profile pages doesn’t seem as natural or fulfilling on fan pages.

Travelocity putting commerce on their fan page is not brilliance…it’s logical (although their design approach is questionable). But purchasing their next trip may be exactly what fans want to do, while they post pictures of their vacations and chat with their friends about where to go.

Maybe social commerce with its built-in ROI is a missing link for the social graph. Transactions are measurable by nature…and the goods and services that we built our allegiance to brands on, were in many cases, based on our purchases and the buying experience itself. Figuring out commerce and its intersection with community is a potential way of building some measurements into the social paradigm. And nothing is more measurable than revenue.

Social media and communities have immense value in their own right. No denying the importance of community for brands and businesses. But if we can figure out commerce as the natural offshoot of community, then truly everyone wins.

Companies will build more brand loyalty and stronger communities. Fans will socialize and shop. And businesses will do what they do best… build value for themselves from the value they provide through their products and services.

Kudos to Facebook. They’ve stumbled on a redefinition of advertising that seems potentially palatable for the consumer and useful for big brands and small businesses alike.

On the social web, where we select our communities and our friends and expect conversant interactions, interruptive push advertising is basically spam, whether it be a video ad, a banner or an unsolicited email. What Facebook is doing is building an ecosystem where scattershot is unacceptable, generic is ineffective, and it is possible to match effectively seller and buyer in a near social manner. Successful advertising on Facebook will be focused on ‘touch’ as a point of interaction and conversation rather than ‘push’ as an interruption and distraction.

Let’s step back and look at what Facebook has done.

Facebook has created through a free social network what the print and TV industries have been trying to do for generations. That is freely acquired, detailed demographics on the background, interests, affiliations, and relationship status for 350M individuals. And with, this the idea of advertising, both agency and individual suddenly have a new direction. Companies can offer information and products to you when you are looking for something and talking about it to your friends in a venue outside of search and keywords.

For as long as there has been products and audiences, the seller has tried to know more about their customers so they can target messages directly to the right customer at the right time. If you are single, you are probably OK to see a dating ad or planning a trip, travel insurance, and so on. The best advertising venues delivered the largest audience with the most specific demographics, but the match was never precise.

Here’s the beauty of the Facebook ecosystem from a pure marketing perspective—everything we as users share with our friends to create relationships and community, are the precise data that advertisers want:

* where we live

* what we read

* where we travel and what we eat

* religion, political beliefs, movies, music likes

* schools, clubs, organizations

* links to outside sites

* basically everything we share

Wow. A goldmine of value.

And this information costs nothing to acquire. Goodbye survey companies. It is now self-selecting. When Facebook pushes keyword search to the top, another new paradigm will emerge as well.

No wonder that a large chunk of Facebook’s $1B in revenue is from advertising.

I’m not a big user of advertising in my businesses. Social tools are more precise, more delicate and more to my liking. But what Facebook has done unlocks new avenues for communicating in a social way. My markets are on Facebook and I’m open to ways to reach them.

Three ideas bubble up around Facebook’s paradigm of what I call ‘touch’ vs. ‘push’ advertising.

First, what Facebook is starting to solve, albeit in a contained network, is the authentification problem. Online, with search you are either an IP address or a cookie. With Facebook you are a person with a face. No longer does the advertiser need to ‘boil the ocean’. It’s possible that advertising is moving to a direct marketing or even moreso a personal conversation between a brand and a consumer.

Second, advertising is potentially more than a tool of brute force. No reason to yell if you are talking one-to-one or one-to-a-few that fits a chosen demographic. The self service ad tool lets you precisely target, set your spend and adjust your ad to your chosen group of individuals.

And third, this drives the need for more creative, more specific and a more participatory approach towards ads and campaigns. I believe that today the world is moving towards being 100% customer driven. If you can find me when I’m planning a trip, changing my residence, planning my movie watching for the holidays, then I will pay attention to offers and campaigns that are interesting and engaging and thoughtful. If not, I’ll just ignore or block them. Even in advertising under this model, the consumer can decide what they see.

Facebook makes these three ideas a reality.

Social media and the social web demand new business models. As socialization and democratic venues arise, how companies converse with us needs to change. There are entire new economies, like game microcurrencies, and affiliate networks, then there has always been…advertising.

What Facebook appears to be discovering is that with open demographics, data driven, self-service tools, advertising can be reconfigured to be a useful touch point and an offshoot to conversation rather than an intrusive push interruption.

I’ve been thinking about how visual storytelling in TV, movies and advertising is starting to mirror what happened to the music world with the collapse of the big labels. But I’ve been struggling with how to articulate it, especially as it relates to advertising and the changes in distribution of ads to web centric folks like myself.

A brilliant slide deck, Digital Strangelove, by David Gillespie, which Fred Wilson republished, helped put additional context to my thinking. Simply (and I paraphrase)—if TV and film are just video. And newspapers, books and magazines just text. And radio and albums just sound. And if distribution is free (which it is) then the game has brand new rules. Which it has.

The networks no longer have a lock on TV content. Nor the studios and theater chains on movies. Then the concept of a broadcast ad or commercial changes dramatically. In a phrase, ”Democratization drives disintermediation”, which means that there is equal access for all to the transport pipe and the customers. This is empowering change for all of us.

How this popped for me is that I don’t watch TV but I’m seeing all the latest ads by Google, Apple, Microsoft, whomever without ever tuning into a TV network. My blogs and news feeds lay out the news (many in video) by my interest categories and I watch what grabs me. Advertisements from corporations. Garage band music videos. An iPhone video of my friend’s dog chewing on his head. Whatever. They are all equally accessible and have free distribution.

Goodbye network strangleholds.  Distribution pipes are free. Access to groups is free. This doesn’t mean that corporations like Apple for the iPhone or Miele for a vacuum cleaner, can’t communicate with me through video, that is advertise to me. Not at all. They just need to be interesting.  In categories I care about and find me in non-intrusive ways.

I like this. Visual storytelling (that is, video) is no longer restricted to the ‘distribution have’s’ because we all have access. Tools to create are ubiquitous and getting easier to use. And individuals and the successful companies are getting more creative in telling a story. They have to because no one is captive and the playing field is leveling at least in creativity and distribution.

I don’t think that my experiences are ahead of the crowd here. And in the next year as Boxee and other systems drive control of the TV screen to our laptops, this paradigm will become even more widespread.

The announcement last week that True Ventures, a VC in San Francisco funded the 20 x 200 art site based in NYC under the moniker of the ‘Democratization of Art ‘, is a step forward in the disruption of the internet to traditional business models.

Put aside the interesting fact that a San Francisco VC funds a NY based art startup. It’s the idea of Democratization that strikes a chord with me as this is the concept that I believe underlies the marketing and business changes that the internet is demanding.

The art world and the world of galleries and limited editions is all about exclusion. It’s about creating scarcity and value through limiting access to both the artist and the buyer. The former by the scarcity of representation that can provide a market and the later by price. This is the world that Jen Bekman at 20 x 200 is turning on its head and True Ventures and a handful of visionary angels are funding. In the very still and aloof world of art, this is a very rash and important move. Throwing away the obscure and hidden pricing model of the gallery world is audacious and empowering to the rest of us.

The True Ventures post describes the importance of the idea: ‘…the potential of Jen’s vision to leverage the Internet to lower the velvet rope to the Art world and make collecting accessible to everyone.”  It is a huge idea and will reverberate throughout the art world. Jen Bekman’s formula: (Limited Editions x Low Prices) + The Internet = 20×200 is not limited to photography alone and I’m sure she is thinking to the limits of this formula.

The internet has already set the groundwork for a global democratized market, it is just taking some time to see it and bold folks with big ideas to muscle change into existence.

The list of transformed businesses grows daily. Hybrid and online distribution channels have pounded the stranglehold of retail chains. Cloud based shopping carts and back end warehousing from Amazon and others has removed the barriers to selling hard goods for small businesses. The music, real estate, news, car businesses to name just the obvious, are changed, some with ease others still in pain.

The change in the art world that 20 x 200 is heralding speaks to me personally as art is important to my life. I’m reading the Sunday New York Times, looking at my limited prints of Margaret Bourke-White on the wall and checking out the galleries and art shows in the city. The essential nature of art and the importance of creative expression hasn’t changed, it has just begun to expand and become more accessible and more democratic. Jen Bekman and folks like 20 x 200 are pioneers in making it happen. Thanks for doing this.