The incredible momentum of GroupOn has predictably drawn a swarm of new players to the bright shiny object, setting up shop to copy the Daily Deal model and empower existing media companies to compete with GroupOn.

The SMB recall of GroupOn as a brand, as noted by Greg Sterling, is truly impressive for such a young service. Clearly, performance-based lead generation via deep discounts is compelling to fatigued small businesses in today’s economy. I’d guestimate that every major US metro market will have a dozen active daily deal providers by the end of 2010.

Projecting Forward

A few things feel predictable in the face of this market swarming behavior.

Deal terms will become more SMB-friendly – a requirement to make the concept digestible by a larger segment of local merchants.  A very small fraction of businesses can deal with thousands of discount customers swarming them via one campaign.   As competition heats up, and with traditional media companies moving into the space, the SMB will be offered deals that accept limited quantities, commissions will be ratcheted down, and payment terms will be faster.

This will all contribute to Daily Deals becoming a more acceptable model to a larger audience.  However, it will also reduce the attractiveness to the second and third tier providers.  Small businesses will be barraged by competing sales teams which will increase the difficulty for new entrants to gain mind share.  Incumbent media players acting defensively may determine the space a must win, which could lead to bundling practices that flattens margins for single ad product players.

The consumer deal volume will continue to increase.  Today in Denver I have six daily deal emails hitting my in-box, none of them particularly well targeted.  Targeting and filtering of deals will become a primary space for innovation, and will be needed to not begin to lose the engagement of consumers in deal browsing and sharing.

While email is the currently dominant channel of deal delivery, how deals reach local audiences will diversify as various media players exploit their particular path.  Display advertising, portal/mail feeds and mobile services will all give consumers access to a growing variety of deals. Consumers don’t much care where they find the deals, and social sharing will be powered everywhere.

Three, the small business will become fatigued with deep discounting and annoyed by the sales channel noise.  Many businesses I’ve talked to view this price discount behavior as necessary/interesting campaign during desperate times, but don’t view it as a long-term marketing model.  I believe deep discount pricing will naturally settle into being a selective use tool.

Projecting Past the Blunt Instrument Phase

The early success of Daily Deals will be instrumental in accelerating the introduction of live local marketing.  These deals validate that enticements work very well to drive leads, and demonstrate dynamic social engagement – teaching small businesses the importance of social and real-time marketing.

I intentionally called Daily Deals a blunt instrument for a couple of reasons.

The daily deal coupon is really only applicable to a fraction of local businesses. Home service businesses, several forms of retail, and many local activities simply don’t fit the purchased discount coupon marketing formula. Marketing extends well beyond coupon promotion.

Additionally, the Daily Deal model, working via traditional media paths of email and coupon printing, is not well aligned for the fast approaching world of real-time LBS.  Check-in and local mobile search are very core methods of audience access; these more casual and spontaneous social models are quite different from the current world of Daily Deals.

As the social graph becomes more integral to local marketing, the techniques for localized smart targeting will get really interesting. Consider being able to selectively entice and reward your customers based on their referral value to your business; consider being able to stimulate demand whenever you need it the most. Consider being able to drive demand driven by live feedback of how and where consumers, and your customers, are collecting.