We are inundated with a number of sites offering the best deals on all kinds of products, services and experiences. Groupon was the prime market mover of this model and due to their success, a number of copycats have spun their own deal-offering services. But how sustainable is this model? Will these daily deal businesses last? Are they “To Be Or Not to Be?” That is the question.
First, let’s examine the business model. It’s fairly simple. Leverage technology to develop a consumer database with interest profiles. Then, communicate to this database on a daily basis the offers that are relevant to them. But, make sure the offers are so great, that consumers will want to act before losing out since deals are limited. Consumers then act and purchase the deals online. That’s it. There are variances, but essentially, that’s the model.
Why did these daily deal companies become so successful so fast? Groupon grew to 3,500 employees faster than any other company and was offered a sweet acquisition deal by Google in the amount of 6 billion dollars. The rapid success of these daily deal businesses could be attributed to the following:
- Deals are deeply discounted, more than any other standard coupons consumers find anywhere.
- These services were launched amidst the worst economy in 80 years. Many consumers were forced to cut spending in creative ways and these deal sites and their business model met this consumer need.
- With quick and immediate delivery and transaction methods, consumers get instant gratification by learning about a new deal and locking it in.
How sustainable is this model though? In my opinion it’s not built for the long-term. The problems I foresee with daily deal sites are:
- Businesses cannot continue to run deals on sites like Groupon and Living Social on an ongoing basis. The discounts are so steep and the advertiser also has to share the revenue derived with the daily deal site. It’s a money-losing transaction.
- The deals may create awareness, but will the customers return? Most likely not, as many will wait for another similar deal or just experiment with something that is out of the ordinary.
The above foreseen issues will lead to a “deal burnout” for both businesses and consumers.
So, in the long-term, daily deals are “Not To Be”. I’m sure sites like Groupon and Living Social will be around for a long time, but there will be a consolidation of all the copy cats and eventually declining revenues from the big remaining players. It’s inevitable. Sorry Groupon, you should have taken that deal from Google.