Daily Discount Coupons: Pay Dirt or Raw Deals? - Part 1
The real question is which sites are positioned to be leaders in this space, says BIA/Kelsey analyst Peter Krasilovsky. Leadership, after all, has its privileges: It brings in the best deals, the biggest audience, the greater ability to raise money, and positions one to shape the next series of trends.
Jun 7, 2011 5:00 AM PT
Once upon a time there was an online group called "The Point." It was a nebulous organization with the vague goal of using the power of social media to to do such things as crowdsource a design for the Chicago Stadium or launch a petition.
One day, one of its members got the bright idea to use its numbers to subscribe to The Economist for a volume discount.
Voila. An US$873 million industry was born. That was last year's take, anyway.
That is the lore behind the origin of Groupon, as told by BIA/Kelsey analyst Peter Krasilovsky. Whether or not that group subscription was the first daily deal transaction ever, though, even Krasilovsky, who has been tracking this space almost since its inception, couldn't say.
"There is some debate in the industry over who was really first -- who should be credited with launching the industry -- Living Social or Groupon," he told the E-Commerce Times.
By this point it doesn't matter, except of course, for bragging rights. That simple idea -- banding together otherwise unrelated and unconnected consumers via the Internet in order to get a huge volume discount on a product or service -- has morphed into an industry that three and a half years later is already overcrowded with players big and small, and on the brink of evolving into Daily Deals 2.0.
500 Sites, 102 Million Customers, $3.9 Billion in Deals
The stats are very telling: Consumer spending on daily deal offers is expected to grow to $3.9 billion in 2015, a 35.1 percent compound annual growth rate, according to BIA/Kelsey's Deal-a-Day Forecast.
A more ambitious outlook pegs its growth at 47.4 percent CAGR, to $6.1 billion by 2015, while a conservative assessment would put the space at $2.1 billion, for a 19.7 percent CAGR.
As of March 1, there were 178 cities with deal-a-day sites reaching 102 million people in the United States, BIA/Kelsey estimated.
Some cities, such as New York, have scores of these offerings. There are roughly 500 all told.
"It is unlikely they will each be a successful business," Krasilovsky said. "There is a low barrier to entry, however and if the current model of the deal site taking between 35 percent to 50 percent of the coupon value holds, then a lot of these sites will be able to limp along, sustained with relatively low sales."
The real question, though, is which sites are positioned to be leaders in this space, he said. Leadership, after all, has its privileges: It brings in the best deals, the biggest audience, the greater ability to raise money, and positions one to shape the next series of trends.
Daily Deal 2.0
Right now, perhaps even Groupon and Living Social are not entirely clear on which trends will dominate -- although certainly they have their own models and strategies to push. However, the daily deal market has almost become its own entity, fueled by consumers now accustomed to deep discounts and ever-ready offers.
Then there are the new entrants, some of which are quite formidable. Facebook just launched its own offering. AT&T Wireless is planning to launch a service around its Yellow Pages. Each of those players alone has the potential to shake Groupon and Living Social from their perches at the top.
Following are some of the ways these sites have begun stepping up their programs to differentiate themselves:
- offering deals in conjunction with checkins;
- offering deals during a certain hour -- say, after lunch or before dinner;
- expanding beyond the traditional service categories to B2B and luxury goods;
- moving beyond their traditional demographics -- college-educated women -- to target other demographics and pure verticals;
- organizing flash sale or instant sales in which dozens of businesses are able to participate instead of just the handful in a daily email;
- going international;
- offering standard consumer-packaged goods such as diapers or cereal; and
- carving out local and then hyperlocal geographies to target.
"With any new trend, it takes a lot of time for the general form to take shape, and that is when the low-hanging fruit gets picked," eMarketer Principal Analyst Jeffrey Grau told the E-Commerce Times. "We are at that saturation point right now. It would be hard for a new company that isn't a Facebook or AT&T to enter the space and make a difference unless it had a startlingly new model."
Signs of Fatigue
Any changes will have to take into account the growing hints of both consumers' and business participants' fatigue with the model, Dan Hess, CEO of Local Offer, told the E-Commerce Times.
Right now, those hints are barely discernible, he said. Indeed, in a recent report "The Daily Deal Phenomenon: A Year in Review," Local Offer forecasts that the group-buying industry will expand by 138 percent to $2.66 billion in 2011.
In the first quarter of the year alone, more than 39,000 deals would be published, it predicted. That compares to the 63,000 deals published for all of 2010.
Still, more tools will be necessary for consumers to cut through all the noise, said Hess, pointing to Dealradar.com, a site operated by Local Offer, which aggregates deal offers and then displays them by categories.
Another site, Gtrot, which uses Local Offer's deal feed, filters offers for vacationing tourists. Say you are planning a trip to San Francisco in June. You can plug in your travel dates and start receiving San Francisco deals targeted to your interests.
As for the merchants, "we expect that over time, tools and systems will evolve that will let merchants run deep discounts to secure the volume that they need when they need it," said Hess.
For those who find such scenarios difficult to swallow, eMarketer's Grau points to eBay's early days.
"Ten, fifteen years ago, online auctions were all the rage. Then people started to get tired of them and today we have eBay emphasizing the fixed-price aspect of its business. One day we will get to the same point in the daily deal market. It just remains to be seen what the eBays of this space will be emphasizing," he said.
And who they will be.