
The rapid rise and fall of daily deal Web sites - Libertatea
http://www.washingtonpost.com/blogs/innovations/wp/2013/11/22/the-rapid-rise-and-fall-of-daily-deal-web-sites/
======
tokenadult
From two years ago, submitted here to Hacker News, an article "Why Groupon Is
Poised for Collapse"[1][2] identified problems for Groupon's customers in
Groupon's business model. My comment back then noticed something interesting
in the article:

 _I think this is the most interesting paragraph in the submitted article: "As
critical as I am of Groupon, the slam dunk case is to sign up with Groupon if
you’re going bankrupt. I strongly encourage every business that is about to go
under to call Groupon. (Don’t tell them Rocky sent you.) It makes total
financial sense--as a Hail Mary play. If you’re lucky, the upfront cash will
be enough to help you stay afloat. If not, well, you were already going out of
business. It may be your best option. In the short term, you’re actually
helping Groupon because they’re being valued on revenue and no one is taking
into account risk."_

 _If word of this gets around, the incentives set up by the typical Groupon
agreement with a merchant will be responded to by merchants for whom those
incentives are the most perverse. Groupon may discover that it is inexorably
moving into the business of last-ditch financing for failing businesses._

[1] 13 June 2011 TechCrunch story by Rocky Agrawal:
[http://techcrunch.com/2011/06/13/why-groupon-is-poised-
for-c...](http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-
collapse/)

[2] Hacker News discussion of story:
[https://news.ycombinator.com/item?id=2649739](https://news.ycombinator.com/item?id=2649739)

~~~
maratd
This is actually optimistic. There's an assumption of hope, a possible light
at the end of the tunnel.

I purchased a voucher for a Sushi restaurant in NYC on LivingSocial. Two days
after purchase, I went to the place for dinner. I was surprised to find the
place closed and a big sticker from the State of New York on the door stating
that the property has been confiscated due to failure to pay their taxes.

Somehow, I think the proprietors knew what was going to happen and when ...
and scheduled things appropriately. I got a refund, but I'm not sure
LivingSocial did.

------
smoyer
If you want to see what business models will survive the for the long-term,
analyze them in terms of neutral value. If there was a hypothetical Groupon
where the consumer saw $10 of value, Groupon saw $10 of value and the
merchants saw $10 of value, it would still be growing.

The actual Groupon business model was a loss for merchants from day one, but
they were sold on potential benefits (new customers or regular customers
increasing their spend). It doesn't take long for a business owner to notice
they're losing money on a deal, and so it should be no surprise that Groupon's
reality quickly overcame Groupon's sales hype.

~~~
rgbrgb
That's an oversimplification I think. Groupon was a method of advertising that
merchants paid for with their goods. This article argues that it turned out to
be a bad method of advertising because of disappointing conversion rates. That
said, if it was so terrible I don't know why the founders didn't know that in
the first few months.

~~~
wutbrodo
There were mainstream articles published about how bad for businesses Groupons
were wayyyyy early on in their existence. I'm sure it can work for businesses
with a low marginal cost and a product that's designed to be a recurring
purchase (e.g. yoga studios that aren't already fully booked), but businesses
apparently didn't take the time to do these estimates. For a long, long time,
Groupon has just been burning businesses (who tend not to come back) and
counting on hype to keep signing up new ones. I can't see how this wasn't
clear to Groupon years ago. That is to say, I'm sure the founders _did_ know
in the first few months, and either were fine with fooling
investors/businesses or were desperately hoping that they'd find some way to
"pivot".

~~~
b1daly
It does seem like the Groupon model has promise for businesses that have low
marginal cost of goods like an under utilized yoga studio. What other kinds of
businesses have this quality? Sellers of digital goods for sure, in wich case
the Groupon model becomes a form of price segmentation.

------
cm2012
As the manager of an apparel manufacturer's e-Commerce arm, flash sale sites
are just useful. We have essentially unlimited goods to move, any additional
channel that can actually move volume is awesome. NoMoreRack is never in tech
circles, but shit they move product.

~~~
ericcholis
I can agree with this, but I think that most flash sale sites have diverged
from Groupon and the like (or the other way around). Physical goods based
limited deals offer more value than purchasing a voucher (discount, massage,
restaurant, vacation, etc...).

Also, flash sales sites tend to be more focused and give the appearance that
you are dealing directly with the site owner; not a third party aggregating
deals.

So, to me, there are two types of daily deal sites.

1) Flash Sales (Steep and Cheap, NoMoreRack)

2) Voucher Sales (Groupon, Living Social)

I feel like the physical goods space will always do better than a voucher-
based deal site.

~~~
dazzla
Yes the physical goods deal sites did well before groupon and have continued
to do so since. I run a mobile aggregation app that I launched before groupon.
When local coupon deal sites came along I included them for completeness but
the physical goods, online, flash sites have always done better for me. It's
interesting to see groupon, etc move into the physical online flash deals.

------
mvkel
This article should instead be titled "The rapid rise and fall of the daily
deal _business model_"

Talk to any Groupon sales associate and they'll tell you the company is doing
just fine.

The company is already transitioning (successfully) beyond a daily deals site;
the deals now represent about 20% of their total revenue.

~~~
wpietri
Was there some point where you could talk to Groupon sales associates and be
told something other than that the company is doing just fine?

~~~
mvkel
Actions speak louder than words. Sales folks keep score by how much commission
they make. If there weren't money to be had at Groupon, their sales folks
would be leaving in droves.

Sales turnover is always high in any position that involves a lot of cold
calling. It's nothing to do with Groupon per se and everything to do with the
inherent nature of the position. Relative to other high-frequency,
transactional sales organizations, Groupon's turnover is likely below average.

~~~
tg3
I've heard that their turnover is exceptionally high, and if so I think their
actions are ambiguous at best.

------
pron
This demonstrates something we all ought to remember: whenever a new business
idea pops up in the consumer web arena, some people are optimistic and hail it
as the future of that business, while some dismiss it as a fad saying "that'll
never work". The last group is often considered conservative and old fashioned
by the first, as people who just don't get it. Then the idea takes off,
generates a lot of buzz and a lot of investment. But those initial signs and
that meteoric growth don't mean much. In the end, it turns out that sometimes
the optimists are right and sometimes the naysayers are, and it's really hard
to tell who's right and who's wrong for quite some time.

~~~
icelancer
>In the end, it turns out that sometimes the optimists are right and sometimes
the naysayers are, and it's really hard to tell who's right and who's wrong
for quite some time.

Or: Both parties are right for their own reasons and are simply talking past
each other.

------
legendben
I think the author failed to recognize the advertising effect of running daily
deals. Yes you are likely losing money for the deal itself as a merchant, but
how do you quantify the advertising effect of having your restaurants featured
on a nationally known website. Advertising on Groupon.com should not be free,
should it? I agree that daily deals does not magically make a business more
successful. I think business should focus on quality and innovation of product
and service for long term success.

~~~
stanleydrew
This is always the stated benefit to merchants. The author didn't miss it.

What's failed to materialize is any ROI on the Groupon "advertising" channel.
The ads aren't working. Therefore the merchants are no longer buying.

------
sliverstorm
No mention of Woot and the other original "daily deal" sites?

~~~
potatolicious
Woot is a liquidator, not really related to Groupon, LivingSocial, et al.
Liquidators have existed for eons, Woot simply brought it to the general
public - instead of dollar stores and cheapo stores.

Maybe Woot is the post-Groupon. After you Groupon'ed your business to death by
slashing your revenues 75% at a time, folks like Woot get to sell off the
skeleton. As long as businesses keep failing and inventory management keeps
sucking, Woot will have plenty of business.

That's actually a thought though: a lot of liquidation inventory comes not
from outright failing businesses but just really poor demand forecasting and
logistics. With improvements in these fields Woot may find it harder and
harder to source compelling products.

~~~
dazzla
Woot! doesn't actually liquidate so much. A lot of their sales are on products
that are not available in the market yet. Plus their own products such as
their t-shirts.

------
nyar
I'm still visiting daily deal websites every day...

I never visited Groupon, that's not the type of deals I'm looking for.

Sites I look at are woot.com, dealnews.com, bitsdujour.com slickdeals.net,
etc...

Groupon is for the masses.

------
RankingMember
For people like my SO who is always looking for a deal, this was a goldmine,
but I knew the bottom had to drop out at some point as we used these at places
we already went to. I'm still expecting Restaurant.com to do the same thing.

------
pbreit
Rocky erroneously thought Groupon was going to zero and has been incessant in
his criticism. I guess I don't expect him to ever admit he was wrong about
Groupon. If he's still short the stock, he's losing.

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neakor
The merchants and small businesses were hurt. Many copy cats went under. At
the end, the person who got rich was the founder of Groupon. How ironic...

~~~
krrrh
Business is the finest art, and he's painting every day.

* [http://rapgenius.com/Andrew-mason-look-no-further-lyrics](http://rapgenius.com/Andrew-mason-look-no-further-lyrics)

------
majani
What percentage does Groupon charge merchants nowadays? I presume their 50%
commission had to move back somewhat?

------
zerop
Dont know why daily deal aggregators did not shine?

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pjbrunet
[http://TheCentsAbleShoppin.com](http://TheCentsAbleShoppin.com) is growing
since 2009, over a million pageviews/month and it's steady traffic.
Disclosure: One of my clients and she really puts in the hours. It's
definitely a full-time job, not a "get rich quick" scenario.

