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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.

The Economic Slowdown could be a boon for daily deal websites to make money and establish themselves

Posted in Collective Buying, Industry updates by Manas Ganguly on June 29, 2011

Boston Consulting Group recently released a report which says that Consumer Confidence Is Retreating in Many Parts of the Developed World. Nearly 90 Percent of Respondents in developed countries say they plan to maintain or reduce spending—but China and India Are Notable Exceptions. BCG’s 2011 global report on consumer sentiment, Navigating the New Consumer Realities states that the negative emotional responses (which are chiefly due to the economic slowdown) are directly affecting spending behavior.

To quote the report- Consumers are trading down and purchasing more private-label products because they feel it’s important to get a good deal—not necessarily because they can’t afford the price.Trading up has shifted from conspicuous to ‘conscientious’ consumption.

Now then, consumer buying preferences are shifting to bargains and thus, this should be music to the daily deal makers. If consumers start flocking the daily deal websites such as Groupon, Snapdeal, LivingSocial and so on, traffic to these sites is going to multiply. Is that good or is it bad?

On a immediate basis it is better than good, Great in-fact for the daily deal businesses. More traffic, more revenues, more businesses signing in and the general doubt on the nature and sustainability of this business model will be laid to rest. This will be brand antagonistic. However revenues, profits and footfalls aside, the daily deals businesses will need to perfect their back end business models and deals with sellers and businesses. Currently that side of the business is less than great! Inability to put traffic and back-end mechanisms in sync could end up in a lot of consumer and partner dissatisfaction. As is said, “there is no better time to build a quality business than a economic downturn”, the daily deal websites will have to master the art of riding this wave during the downturn.

In the long run, Brands will build back the “trading up” factor and their relevance. However, daily deals and bargains will hold a part of the flea bargain market for categories which are less personal and relevant to consumers.

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