Here we are, day 4 of SXSWi and effectively my last day as I’m heading back to NYC tomorrow. Today’s featured panel was a deep, well rounded, and relevant look at leveraging Social Media in the B2B Space.

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Greetings from #SXSWi 2012!  Once again I’m here in Austin, ear to the ground, livetweeting like a manic d-list celebrity, and keeping tabs on what’s going on in digital across industries.

After spending some time in an insanely long registration line, I got the party started at 2PM with the first panel of the year.   Titled “Brands as Patterns,” I was keenly interested in hearing a discussion on messaging patterns across today’s communications platforms. »

As 2011 rounds the final corner, I find myself looking back on the year. To say that much went on is a bit of an understatement.  What really grabbed my attention about this year, however, was the paradigm shift around brand marketing.

Most companies have approached today’s emerging digital platforms in a traditional trickle-down model: Invest in celebrity/spokesperson, pump tons of money into branding and ads, and then track awareness and purchase behavior.

While that model may have been an effective template for more traditional media platforms, it’s an ineffective approach to today’s digital environment. »

Social experiments are powerful displays of how humans behave in certain situations.  They can range from documenting individual behavior or that of an enormous sample of people.  Many times a moral element is involved in the situation.  They can be used to illustrate both the good and the bad of human nature, and are generally consumed by a public that has an innately narcissistic interest with how we as a people behave. As a marketing tool, it can have a powerful effect if done right.

However, social experiments in viral marketing settings can be a gamble.  Not informing people of a company’s potential involvement can generate distrust and actually do more damage than good. »

So you may have heard about the “slight” financial difficulties that have been brought to light at Groupon. Thanks an impending  (and now ill-advised) $750 Million IPO, the company’s books have been placed under scrutiny.  Thanks to I-bankers doing their due diligence, we all discovered that Groupon has consistently been losing in excess of $100 Million per quarter for the last year and a half.  How could such a popular company and business model be failing so epically?

As my colleague, Zach, explains rather well:

“But the idea that the internet is going to generate tremendous profits for the same old crap because of a slight tweak of existing retail models is preposterous and the failure of Groupon and the “pivots” of Flash sites like Gilt illustrate this as elegantly as anything.”

Admittedly, I sipped my share of the kool-aid fort a short time, and in my defense, it was amidst the insanity that was SXSW. Rewind 6 months ago, and I was sitting at SXSW, listening to Aaron With talk about the importance of being “weird,” in which  he tried to justify the reason for devoting an entire room of their office to an inane and Dada-esque display.  There’s an underlying assumption that companies can get away with doing weird, tangential stuff if the company is being run well. Instead, you have a company paying massive bonuses out to its founders while paying content editors 30K, all while losing $400+ Million a year. #NotOK.

It’s not just the fact that Groupon seems to be badly run.  There are underlying reasons why the flash sale market is unsustainable. In order to understand the failure, you don’t have to look much farther than the prohibitive mechanics of a flash sale’s model.

Businesses offer their services at 40-to-80% off of the retail markup.  The deal site then takes a 30-40% cut from the already-heavily discounted sale price.  So a brand that wants to flash-sell a product that retails for $100 sells it on the site for $50 and then takes home $32.50 assuming the site takes a 35% cut.

So what’s the justification for this? Does it have a place on a large scale in today’s economy?

The answer is mostly no.

Deal sites try to justify their use in a few ways:

1. They act as a portal for these deals, and become a destination for people looking to take part in them.
2. They are curators of these deals, and their user base captures attractive demographics that brands want to reach.

The problem for sites like Groupon and the myriad other sites is that most businesses don’t operate at margin levels that make flash sales financially feasible.  Couple that with that fact that flash sales don’t spur repeat customers, and its value becomes less apparent.

The flash sale business model as it is today has been kept afloat by it’s fad-like rise in popularity. Groupon’s business model is relying on ever-increasing usage numbers to keep it afloat. It’s got the makings of a mini bubble.

The simple fact is that the deal sites are unfairly symbiotic.  90% of businesses can’t justify a 30% cut on something already marked down 50%.

These deal sites also assume that informational model of the internet remains static.  The only thing stopping these individual businesses from putting on a sale themselves (without the flash sale middleman) is the perception that these sites have a more direct connection to their desired demographics.

What if the deal model becomes open-source? Search engines are  have the potential to efficiently connect users with deals they are looking for.  I see a world where our technological facilities bypass these expensive middle men, much like email and online shopping bypass mail order catalogues and coupons.

That being said, who should think about using A flash sale?

I’m not saying that the flash sale model doesn’t have it’s uses.  I suggested specific flash sale models to some of my clients when it made sense, economically and otherwise.  If your business/product has the following traits, then it could still make sense to do so:

• You’re a new business looking to develop your audience and don’t have a PR/advertising budget.
• Your product has a high (80%) profit margin.
• The deal site you’re using reaches the right kind of people. (IE: luxury goods on GiltCity)

If you answered yes to these, then a flash sale could be a good idea.  Otherwise,  stay away and just offer up a great sale yourself without the middle man.  If it’s a worthwhile deal, online and real word of mouth will do the rest.