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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.

Future of Local Commerce: Collective buying (Part II)

Posted in Industry updates by Manas Ganguly on March 20, 2011

This post is a continuation of the part one in the collective buying series and details the competition in the area of collective buying which now has the fancy big boys (Google, Facebook, Yahoo) joining the originals (Groupon, LivingSocial and Foursquare)

Facebook is planning to offer multiple deals every day, focusing particularly on activities that can be shared with friends, such are visiting restaurants and concerts. The strategy builds on the company’s existing Deals program, which is offered as part of Facebook Places. Facebook is testing a new discount service that allows people to buy deals on Facebook and share them with their friends. This then is FB’s most direct assault yet on local deals giant Groupon. FB is in a pilot to test this service in Atlanta, Austin, Dallas, San Diego, and San Francisco.

Google has recently launched a similar check-in deals service for Android smartphone users. Like Facebook, Google’s efforts borrow from the Google Latitude, Google Maps, Google Places and the Check-in app. Google’s move highlights its aggressive measures to target the intersection of local search and e-commerce in the wake of the company’s failure to acquire Groupon for $6 billion.

Yahoo Local on its part has partnered with Groupon, LivingSocial, Coupons.com and more than a dozen other companies to surface deals and coupons from restaurants, spas and local clothing shops. Users are prompted deals basis his profile and relevance of the deal to his online buying behavior. Yahoo and its partners would share revenue generated from any local business deals consummated by consumers through Local Offers.

With check-in deals, Google, Yahoo and Facebook have joined Foursquare in dipping their toes in the deep pool of mobile, local and social search. These efforts take advantage of the intersection of users conducting searches for local businesses from their mobile phones and get deals.

Foursquare is one of the old boys in this list and is looking to steer and stay ahead of the pack by introducing location-centric deals. Foursquare users have previously been able to see nearby offers from local merchants, but they had to hunt for them on a large list. Now the deals will be aggregated by locations which will make them easier to find. To make things better, Foursquare also has added a Analytics spin for its vendors. Foursquare Merchant Platform, now includes a gender breakdown of checkins, a breakdown by time of day and other data that the company hadn’t shared before. As previously, the program is free to vendors.

LivingSocial Instant Deals provide a platform for merchants to create deals and get traffic through their doors when they most need it, such as during slower business hours or when they have an inventory of specific items they’d like to move. While LivingSocial daily deals are live for 24 hours, Instant Deals will only be available for a much shorter time, for example a restaurant can gain some additional traffic by offering a special that’s available only between the lunch and the dinner crowd. The deal can be redeemed at the merchant’s place by showing the phone and the Living Social authorization message. In a report in December, LivingSocial said it brings in about $1 million a day.

Groupon may not have been the pioneer at Collective buying as a business(That crown belongs to LivingSocial).However, Groupon has made the most news bytes and has the best presence in US markets. Groupon registers 178 cities with deal-a-day sites reaching 102 million people in the United States. Groupon Inc. may go public this year and be worth as much as $25 billion in its initial stock offering. In trying to stay ahead of the herd, Groupon is not reported to be looking toward the enterprise space, with at least one coupon for IT services consulting in the mix.As with Foursquare, Groupon is also is pushing the envelope with geolocation technology, using hyper-local targeting to reach customers who might be within a few blocks of a client with coupons for, say, a lunchtime deal.

Social Networking, Mobile computing and Collective buying are natural siblings in the era of convergence and connectedness. The Collective buying space is growing fast and is quickly able to cater to both users giving them discounts and bargains they have been looking for and for local business men as well, who now have the ability to push products which are loosing their marketable prices at discount prices rather than booking losses on the whole stock.

Future of Local Commerce: Collective buying (Part I)

Posted in Industry updates by Manas Ganguly on March 18, 2011

A few months back, Groupon made news because of a Google take over attempt for $6 billion. Groupon has stayed in limelight ever since. However, what has also emerged is the emergence of collective buying as a trend either in its original form or in different guises. This post examines the emergence of collective buying as a trend with lot of future potent.

Collective Buying Power with huge base discounts can only be redeemed if a certain number of people agree to buy the deal together.
U.S. consumer spending on deal-a-day offers could grow from $873 million in 2010 to $3.9 billion in 2015, according to a recent forecast by BIA/Kelsey. That represents a 35.1 percent compound annual growth rate.The market could reach $6.1 billion by 2015 — a 47.4 percent CAGR. The most conservative scenario, BIA/Kelsey estimated, would be a 19.7 percent CAGR, resulting in a $2.1 billion market by 2015

Web-based local deals is a market that startups such as Groupon and LivingSocial have blown right open by cold-calling and visiting local businesses to get them to mark down goods and services for the sake of bumps in volume. Collective buying rides the current wave of social networking to Facebook, Google, Yahoo and others are looking to join the fray. For merchants, it’s a chance to fill empty tables or bring in customers during historically slow times. Local businesses have never really had a simple way to manage their perishable inventory, especially labor and food. Why waste those resources during slow periods when you can bring savings-savvy consumers through the doors with a highly targeted local deal?For users, obviously, it’s a chance to get more deals, with the added convenience of location and the added urgency of an expiration hour, not just date.

The second part of this post will be about the various players who feature in collective buying.

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