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.
The CMO Site is an executive social network that provides CMOs and other marketing executives from the world's leading organizations with a real-time, online venue where they can convene to discuss how they're delivering on the most critical marketing priorities. Join us!
I've learned a few things from running a flash deal with Groupon and Los Comales. I don't want to get into the nitty gritty yet as the follow-up is where the play is really important, but I do have some thoughts about Deal Fatigue and flash deals.
To me, the most logical course of action for a daily deal will be to merge with the concepts of pay-per-click advertising. After all, the flash deal is similar in that the advertising network only gets paid for results.
I can see the way the deal is implimentd changing however. The current model places a great deal of the burden on the merchant -- it's the merchant who has to offer the deal, the merchant who takes the big cut on initial sales, the merchant who deals with most of the fallout.
Now, the deal network isn't all take -- it's extremely effective advertising and it gets new faces in the door. I think even if every single deal was on point it'd still lead to deal fatigue however -- there's just not enough friction.
I think part of the solution will be to make deals harder to obtain, include some built-in follow-up, search and more engagement. We'll have to see what happens.
This is true & I share the same sentiment. The worst part of subscribing to 2+ of the deal subscriptions, you end up either seeing the same thing multiple times or (even worse) you buy stuff you do NOT need.
I'm wondering how much of the daily deal and special deal low prices are a way to pull the average price down -- i.e. drop prices without doing it officially. We're in a deep, messy, nasty intractable recession, but some of the signs of a real classical depression have so far not appeared -- notably falling prices. Maybe this is how prices can fall without looking like they're falling. In which case the limited time group special deal may only be in its infancy.
Scott raised a good point and Keith seconded it: the next step is probably some kind of auction pricing, where in effect you say "I want this and I'm looking for a really good deal on it" and suppliers bid for your money. Fixed pricing was always really just a matter of information cost -- if all the cans of beans in the supermarket are the same price, period, you don't have to pay the cashiers to know how to haggle about them. Information cost is still plummeting every year. Maybe eventually your bonded AI will go meet the producer's bonded AI over virtual tea and a game of chess, and then discuss price through a few thousand iterations before coming back to you and the producer and saying "This is the best deal you can both afford."
The novelty of the limited-time deal has worn off for me. I want overall lower prices on the things I buy most. I may be different than the rest of my demographic. Do you think the deals will continue or simply morph into something else? I think there are too many sites imitating Groupon. I don't want to get emails from all of them everyday.
It's a well-known result in price theory that when there are enough "specials" out there, the regular price starts to decline because people don't like to feel that they're paying extra, and the markup for regular has to get smaller. This may be another case of what Schelling called "The Inescapable Mathematics of Musical Chairs" -- in a game between the worst musical chairs players in the world (assuming they can play the game at all) there will be one winner. In a game between the best, there will be one winner. Train the worst until they're as good as the best, and there will be one winner. Similarly, as deal-finding has become faster, easier, overall better, and more and more people have access to it, you may be doing the equivalent of improving the players in musical chairs: better for the individual but the game will have the same result, and over time, the individual's relative benefit declines.
I also don't think the daily deal is done either. If that were the case, then coupons and weekly flyers would already be extinct. That being said, the daily deal industry will need to morph to stay relevant.
Agreed Ryck. I think a more engaging network will be part of a key factor. People need more than to be sent a deal, they need to provide feedback on said deal. While it shrinks the size of the network, it improves its quality which will improve the network's retention. Every deal that's uninteresting increases the chances that the next deal will be ignored and the network will eventually lose a member (even if the person never formally unsubscribes).
if these companies somehow knew what we really wanted or needed
That is the holy grail, isn't it? But even with all the profiling and targeting and tracking available today, I don't see a lot of evidence that those offering deals are making use of it. It's almost like everyone in the game is panicked that the music might stop, so they have to shout and spam offers all over... which only makes it more likely that the music will indeed stop.
I don't think the daily deal is done, not by 2016 and not later. I do think it will change shape a few times though.
After all, as long as consumers and businesses get utility from the networks, the networks will be valuable. So it's more a matter of who can manage their resources while providing the best features until the others die out.
No easy answers here, and I think the flash deal industry is going to play out like a war.
A look back at The CMO Site's polls this year, on subjects including millennial marketing, the effectiveness of social media marketing, and CMO/CIO relations.
The proliferation of smartphones and tablet devices presents new opportunities and challenges for marketers to reach customers where they are and when they’re ready to buy. Apps, the mobile Web, social check-ins, geofencing, and mobile ad standards are among the tools marketers need to master in this new world. Learn how to use new mobile technology effectively and avoid its hazards.LEARN MORE
The CMO University offers executive marketers an entirely new way to get the education they need to forumlate next-generation marketing strategies.Join interactive classes | Earn credits | Chat with peersView archived courses on these hot topics:
To save this item to your list of favorite The CMO Site content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
How the carmaker uses metrics and analytics to track all the proliferating information streams it has on customers, from social media, real life, and more.
Craig Dado, senior vice president of marketing for the Del Mar Thoroughbred Club, describes how the racetrack uses social and mobile marketing to attract a younger, female demographic.
As the US Postal Service prepares to curtail mail delivery, marketers relying on first class will have to plan more carefully and, over time, move into other channels.
Is a massive, three-day industry event featuring A-list speakers like Bill Clinton and Malcolm Gladwell the right approach for a company seeking to generate awareness of its brand? Steve thinks that goes part of the way, but if brands want their names to stick they need to build communities.
CMOs rely on aggregate data for customer preferences and are missing the opportunity to get one-on-one information through social media and other resources, according to a study of 1,734 CMOs conducted by IBM. Watch a Webinar presenting the findings, and get a copy of the report for yourself.
"Moneyball," the new Brad Pitt baseball movie, is one every marketer should see. It's not just about relying on metrics and analytics over gut feelings, it's also about relying on the right metrics and analytics.
Tweet This