Ronnie05's Blog

A re-think on Daily deals business: Unsustainable? Or a tight margin business proposition for the future?

Posted in Collective Buying by Manas Ganguly on September 13, 2011

Even before the daily deals business has really taken off, there are casualties as some of the big names (Facebook Deals) seem to dropping off and some others such as Google Offers seeming to be loosing big money fast. Then there are others such as Yelp who have restructured the deals business and chopped the number of offers it runs.

The latest reports seem to indicate troubled times at Google offers as its revenue per deal fell 37 percent, driven by a 46 percent slump in the number of vouchers sold per deal in the third month of its operation.Total revenue generated by Google Offers dropped 23 percent in August from July despite a 22 percent increase in the number of daily deals run.The average price of Google Offers vouchers increased 18 percent, but it remains “far below” that of Groupon and LivingSocial.That means less incentive for business owners, and despite the lower costs, users still aren’t biting.This despite 9 percent revenue growth in the North American daily deal industry.

In contrast, Groupon gained market share in August. Revenue was $120.7 million in North America, up 13 percent from July.LivingSocial revenue in North America slipped 3 percent to $45.1 million in August, Yipit data show. Groupon’s market share increased to 53 percent in August from 51 percent in July, while LivingSocial’s market share declined to 20 percent from 22 percent. Amazon Local generated more than $1 million in revenue in August, despite being active in only a handful of markets for the full month.

Two observations on the daily deals scene that now unfolds:

1. No matter how large and influential the challenger be (Consider Facebook and Google), it is the first mover that seems to be holding the edge in the daily deals market unless the challenge is very limited and relevant to a niche.
2. There are reasons to believe that at times of economic slowdown and uncertainty, the number of daily deals would actually increase though the ticket sizes may actually come down. Thus a trade-off between deal volumes and deal value.
3. Given that Groupon has deferred its public listing, this has given some reprieve to the bubble scenario which was building fast. It would be interesting to follow Groupon and LivingSocial and see how they walk the tightrope between operational efficiency and wafer thin margins.

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