

Ding Dong, Daily Deals Are Dead - mcfunley
http://www.slate.com/articles/technology/technology/2012/08/groupon_earnings_report_the_daily_deals_site_s_crummy_business_model_is_finally_dead_hooray_.html

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hkmurakami
Here are some reasons that come to mind when I ask myself, "why are daily
deals businesses unsustainable?"

* Large marketing overhead * Large direct salesforce overhead * Daily deal hunters don't become regular customers * Merchants take a loss on the deals

Merchants take a loss on the deals because Groupon takes a 50% cut after
convincing them to reduce prices. Groupon takes a 50% cut partly because they
have large "sales costs" in creating each deal.

Direct sales and outbound marketing was initially required because it was a
new concept that required educating the market. Now that everyone and their
grandma knows about Groupon, I wonder if companies can adopt a new model
without such heavy marketing and sales overhead, and try to make the numbers
work so that both the merchant and the daily deal company makes a profit on
each "deal".

I think the market has established that using daily deals as a "loss leader"
for merchants to gain more repeat customers generally does _not_ work because
of the clientele the deals attract. But what if the Groupon2.0 business
structures the deal such that the deal is offered on a high-margin product
that the merchant already carries, takes a smaller cut (say, 20-30%), and
offers a "lower margins but higher volume" _deal_ to the merchants?

If savvy merchants evolve such that they proactively seek such companies, or
if Groupon2.0 style companies can use low cost electronic marketing methods,
something more sustainable may be attainable.

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ncavig
I agree. I'm a bit ashamed to say that, in addition to what you mentioned,
I've noticed that companies and stores that I did frequent fairly often that
did end up doing a Groupon or similar daily deal, lost more of my business
after the fact because I experience the same service for less. Somehow, after
getting close to 50% off something I enjoyed, the full price didn't seem as
enticing to me.

I do like to support companies and stores that do a good job, but there's the
simple fact that in my head I think that the intrinsic value of this service
is somehow less after the Groupon style deal.

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tzs
These daily deal sites can work out great for merchants sometimes. It's not
all doom and gloom. An example is described here:
<http://www.kuow.org/program.php?id=23711>

Briefly, a small auto shop offered a $30 oil change for $10 via Groupon. The
owner expected to get about 90 takers. He got 2277. He had to hire more staff
and buy a second car lift to deal with them all. It took months, and he lost
money on the oil changes--but about half of them became regular customers and
that made up for the loss and put him overall way ahead.

They also profile a restaurant whose experience (with Living Social) was not
good. Their deal was disastrous.

If you compare the two deals, and the nature of the two businesses and the
psychology of their typical customers, it makes sense that the auto shop
worked out well and the restaurant did not.

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coverband
Daily Deals are not dead. The model is promising for a variety of businesses
and Groupon has it well executed. It also has significant barriers to entry if
you don't have a size advantage or experience with cold sales. Groupon's stock
might be in the gutter but the company is for here to stay and for a long
time. It's possible that there will be a couple of (well financed) competitors
continuing to fight for first place, but most of the wannabes have already
disappeared.

In addition to the deal hunters that are in their customer base, there are
many addicted to this type of purchases. I have quite a lot of anectodal
evidence for such behavior, and if you ask around, you'll find many more.

~~~
dsl
> The model is promising for a variety of businesses and Groupon has it well
> executed.

Groupon essentially invented payday loans for businesses. The two largest
payday loan companies in the US at one point had valuations near Groupons too,
until the slow moving legal system eventually caught up to them.

Deal hunters will go anywhere there is a deal. Groupon just moved "going out
of business" and "lost our warehouse, all inventory must go!" sales to the
internet.

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klous
Groupon didn't invent payday loans. "Merchant Cash Advance" loans have existed
for many years where merchants who process credit cards can sell a portion of
their future credit receipts for immediate cash and the industry has grown
substantially year over year. The industry kind of has a scummy tinge to it,
but these are merchants who cannot get capital from traditional sources and
want to upgrade their retail location or buy some equipment. (or go on a
vacation, the funders truthfully don't really care how they use the money)

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Cyranix
As with so many companies/business models proclaimed dead, I would hazard a
guess that it's not dead yet. Too many people have invested too much in the
concept for there to be no attempt to modify the execution while retaining the
overall premise. Bidding? Fluctuating discounts a la travel sites? Lower caps
on the number of coupons offered? Existing in a different economy, elsewhere
in the world?

Someone out there believes in arbitrage so strongly that they believe they can
make money for themselves while lowering prices for consumers and creating
long-term benefits for business owners. Although I've unsubscribed from
Groupon and haven't been excited by some other companies' recent efforts in
the daily deal space, I would actually celebrate a successful and ethical
daily deal company.

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waterside81
A daily deal site we've been on a few times phoned us today to let us know
they're laying off 80% of their staff. This site just raised a massive round,
so I'm not sure what the implications are, but the daily deal trend is
definitely dying.

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blakestein
I wonder how many people, like myself, decided to stop buying Groupons (and
similar products) because of the awareness that it was generally bad for the
business for which it was being used. I would rather support my local
businesses than save $10 or $15 and feed the monster.

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lectrick
80% of the time, if it is a Groupon for a physical product, I can find it on
Amazon for the same price.

Services, well that's a different story.

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AjJi
Maybe dead in the US, where I live (Morocco), daily deals websites are growing
like weed, and many users "discovered" online payment through them, IMO,
they're not going anywhere.

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joering2
Ok, well, you there in Marocco are having exactly the same situation like we
had in US about 2 years ago. And most likely, due to the fact it cost more
money to keep the DD business running than it generates profits (todays
groupon stock performance, anyone? -27%), you will see the downslide very
soon, following the US. We too thought DD aint going anywhere...

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sedev
I read this article and I instantly thought of patio11 banging his drum and
telling people about "pathological customers." This article reads to me like a
validation of his viewpoint: building your business model on deal-seeking
customers, especially in the small, in the "save $5 to $20" space, is a recipe
for disaster.

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nthitz
Not quite the same but Amazons daily deals are still often good.

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rosser
Groupon sucks, so daily deal sites are dead? Slate's standards have certainly
slipped, if they're publishing this kind of drivel.

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defen
Slate is so bad, and so concerned with debunking popular opinion, that they're
often an inverse leading indicator - in other words, if they're saying
something is terrible, it will probably be good in the near future. So maybe
now is the time to invest in daily deals sites.

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papaver
i don't think the concept of daily deals is dead just the middle man version
that groupon and its clones have ridden on for so long.

i think companies like scoutmob, tiktok, and pirq are doing a good job in
trying to find new sustainable models that are beneficial for both the
merchants and the consumers.

disclosure: i work for tiktok.

