Facebook is getting out of the daily deals game. Yelp is scaling back. Groupon's traffic dropped by half. And Forrester says the whole category will be gone in five years.
On Friday, Facebook announced it will be winding down its four-month experiment with Facebook Deals (which we discussed a couple of times as it was getting started). Facebook insists that it is still intent on offering opportunities to small businesses and local markets. And the company will continue to operate Check-In Deals, a feature within Facebook's mobile app to allow businesses to offer deals to consumers who check in to their location.
Yesterday, Yelp announced it was cutting back its deals program by half. The company says that the deals business was never a large portion of its income. Yelp ran fewer than 30 deals in August, according to market researcher Yipit, in contrast to the more than 60 offered in each of the preceding two months. And the average value of the Yelp deals has dropped by two-thirds since the beginning of the year.
Web traffic to Groupon's site declined by 50 percent in July (excluding mobile and app-specific traffic). This was in the context of a drop of 25 percent across Experian Hitwise's "Daily Deal & Aggregator" category. Groupon's closest competitor, LivingSocial, saw a 27 percent increase in traffic. A couple of days ago, we discussed Groupon CEO Andrew Mason's pugnacious internal memo in which he attempted to rally the troops in the face of various incoming bad news. The memo was written before the news came out about the traffic drop.
A source close to Groupon sent The CMO Site to a TechCrunch account of a report by researcher Yipit, which points out that, despite the traffic issue, Groupon gained in market share in July relative to LivingSocial.
Do these straws in the wind add up to trouble for the daily deals business model as a whole? Forrester thinks that daily deals will be but a memory by 2016. The "deal fatigue" that Forrester predicts is already setting in, Bloomberg reports:
In July, 38 daily-deal sites closed -- more than the 36 that opened -- while the industry experienced a 7 percent drop in revenue from the prior month in top North American markets, according to research firm Yipit Inc. 52 percent of US consumers who use daily-deal services say they feel "overwhelmed" by the number of e-mails they receive about deals on a daily basis, according to a survey conducted earlier this year by [Experian PriceGrabber].
And the fatigue afflicts merchants as well as consumers. "Merchants say that participating in the deals often leads to unsolicited calls from other coupon sites," according to Bloomberg.
The elephant in Groupon's room was described succinctly by MediaPost: "While sales... surged more than 14-fold to $644 million last year, Groupon has also reportedly amassed about $540 million in operating losses since its founding in 2008. In short, its costs are rising faster than revenue."
What do you think? Are daily deals dead, done in by an indefensible business model? Or does the idea have legs? Let us know in the comments and in the quick poll just over there to the right.
— Keith Dawson , Senior Editor, The CMO Site
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