The site will come under the purview of Ned Brody, COO of the media, advertising, and commerce group, as well as the president of AOL’s Paid Services group. Paid Services includes all of the subscription business (both the remnants of dial-up and bring-your-own broadband), along with premium services such as SocialSafe (based on sofwtare from startup Social Shield, which just raised $10 million today) and Computer Checkup. Dial-up is a dying (but extremely profitable) business, and Brody wants to find new growth for commerce and subscription revenues. Daily deals are the new black.

While AOL is clearly following the pack here, it is not clear that is a bad thing. AOL certainly has a lot of distribution muscle through its homepage, AOL Mail, and growing network of local Patch sites (which could be a perfect place to promote local deals). AOL customers also tend to have a better than average proclivity to buy things online.

Not that Groupon needs to lose any sleep over AOL entering the market. Groupon CEO Andrew Mason is more annoyed than anything else at all the copycats. But as Benchmark Capital VC Matt Cohler pointed out onstage last week at Disrupt, “It may turn out to be the case that this daily deal product mechanism is sort of an ad unit, if you will.” He also noted that, other than Groupon’s brand (which is significant at this point), “there are neither barriers to entry nor are there switching costs in that product.” His prediction is that under those circumstances, margins will collapse as more companies compete with more daily deals.

Thinking of daily deals as a new ad unit certainly makes sense. “If you are an SMB [small-medium business],” notes Brody, “this is the first real online advertising that works. Here is an opportunity to buy advertising on a CPA basis that is proven effective.” And for national retailers who used to rely on newspaper circulars, offering deals to people online is becoming more and more attractive.

Businesses are encouraged to offer discounts in return for massive purchase volume and to treat those discounts as a marketing expense because generally the deals introduce new customers to their products and services. That is certainly the approach AOl is taking. It’s pitch to advertisers on the Wow landing page is this:

Pocket the thousands of dollars you would usually spend on advertising — Wow simply shares the revenue with you. Our message is clear: We help you boost your business and establish repeat clientele.

The Wow.com domain has been kicking around AOL since 1998, when AOL purchased some assets from CompuServe, and every time AOl uses it for a new product it turns into the kiss of death. A few years ago, it was considered as a new home for the Netscape portal before becoming World of Warcraft social network called WOW Insider. WOW Insider is now part of Joystiq, AOL’s gaming blog. Wow! is not a bad name for a daily deal site, however, so maybe this time the name will stick. “These deals are meant to Wow you,” explains Brody. Plus, it’s easy to remember.

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Authors: Erick Schonfeld

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