The Pending Implosion Of Daily Deal Sites

Be careful if you’re thinking that you can replicate the success of Groupon.

While Groupon sets its IPO (more on that here: Groupon IPO: It’s Here!), not a day passes without a new (or existing) company trying to replicate the model of offering a daily deal from a local merchant at a radically reduced discount. It’s getting a little crazy out there. What made Groupon somewhat unique was that in order to capitalize on a radical deal a certain amount of people had to commit to it. The daily deal platform has now become so popular that some companies are running deals without this reserve. Pushing the business model even further, new platforms like Deal51 are a daily deal meta search engine that lists all of the daily deals for your geographic area in one place. While there is no shortage of people trying to get a deep discount, the volume and flow of these daily deals site will soon reach the point of consumer fatigue.

In the end, if it doesn’t work for the merchant, it won’t be great for the consumer.

Like any new platform, Groupon (and the other copycat platforms) have their growing pains to deal with. Doing a quick search on the efficacy of Groupon for new business and you’ll find a whackload of disgruntled merchants – some of which have a fair bone to pick while others, clearly, didn’t know what they were getting themselves involved in. ClickZ posted an interesting article today titled, Only 20% of Daily Deals Users Come Back for Full Purchases, that offered the following pieces of data:

• 19.9 percent of deal users are returning for full-price purchases at restaurants, bars, salons, and other retailers.
• 35.9 percent of deals users spend more than the voucher value when visiting a merchant.
• 21.7 percent of them never redeem the vouchers they’ve paid for.
• 55.5 percent of businesses reported making money on their promotions, 26.6 percent lost money, and 17.9 percent broke even.
• 48.1 percent of businesses planned to run another daily deal promotion, 19.8 percent indicated they would not, and 32.1 percent didn’t know for sure.

It’s not perfect, but it’s still interesting.

Like any other digital platform that has gained traction, we’re going to see a slew competitors (like we have today), we’ll then see consolidation along with others who will simply give up on the model because it’s not producing the results they had anticipated. Then, we’ll have the implosion which will result in one or two main players with very different business models (and activity) from what we’re seeing today. Consumers – as they always do – will move on to another bright and shiny social object to pay attention to and these daily sites will be a more modern form of couponing instead of the new discovery of local merchants that it is today.

Some may call this cynical. Others will say it’s practical. What do you say?