The Rise and Fall of Daily Deal Sites

1x1.trans The Rise and Fall of Daily Deal SitesLea Pische and Edwin Hermawan have started a successful new business that deals with deal fatigue — a sickness that has infected consumers and small businesses that offer daily deals.

Three months after its introduction, their new business, UnsubscribeDeals.com, has nearly doubled in the last month, with 7,800 new unsubscribers. Now UnsubscribeDeals has become a support group for shoppers who are fed up with deals.

The New York Times points out that Daily deal services such as Groupon, LivingSocial and Google Offers, flourished because they offered something for everyone: a way for small businesses to get new customers while providing shoppers with discounts — deal providers received a large cut of every sale.

But the success of that paradigm is now in question. According to Daily Deal Media, which researches the industry, in the last six months of 2011, 798 daily deal sites shut down.

According to Groupon’s second-quarter results, active customers — defined as people who purchased a Groupon deal in the last year — grew just 3 percent, a significant slowdown from previous quarter-to-quarter customer growth rates.

“While traffic to Groupon was higher at the beginning of 2012 than last year, it was down almost 10 percent in May and June from the same months in 2011, according to comScore.”

Shares of Groupon have fallen 82 percent since it went public in November, and the company is now worth just half of what Google offered to buy it for two years ago.

Gilt City, a daily deal service owned by Gilt Groupe, laid off employees and closed offices in six cities earlier this year.

Google Offers has had to team with 35 other deal providers to supplement its own selection and help other companies reach customers. And Groupon has been forced to generate income by buying movie tickets, watches and other goods and selling them to shoppers.

“Many of the other competitors have retreated or scaled down ambitions,” said Jordan Rohan, an analyst with Stifel Nicolaus. “There are no real barriers to entry, but there are fairly significant barriers to success.”

Customers who bought deals from businesses spent the bare minimum and never returned.

1x1.trans The Rise and Fall of Daily Deal SitesThe New York Times notes a scene on a three-block stretch in Portland, Oregon, as a snapshot of what is happening nationally, as merchants sour on daily deal services.

Muddy’s Coffeehouse, which serves coffee and granola in a purple-trimmed Victorian home, offered $24 of food and coffee for $12. It paid Groupon half of that. Muddy’s succeeded in drawing crowds — but ended up losing money.

“I pretty much had to take a loan out to cover the loss, or we would have probably had to close,” the owner, Dyer Price, said. “They don’t warn you that you’re going to get hit really hard and that you have to be prepared. We will never, ever do it again.”

A few doors down, Mississippi Studios & Bar Bar, a former Baptist church that became a live music club and burger and cocktail restaurant, offered a Groupon deal but said it slowed down the bartender, who had to complete paperwork for each coupon, and brought in customers who did not return.

“It was a huge boondoggle for us, and we were counting down the days until it was over,” said Kevin Cradock, co-owner of Mississippi Studios. He said he had a better solution for local advertising. “We still do the old-school thing,” he said. “We print these posters and hire kids on bikes to put the posters up.”

“I once got a Groupon for teeth whitening,” one person wrote. “I went to the office and the receptionist gave me some bleach and told me to do it at home. She said it would be extra if I wanted the dentist to do it.”

1x1.trans The Rise and Fall of Daily Deal Sites
Inquisitive foodie with a professional investigative background and strong belief in the organic farm to table movement. Author of Bad Seeds: A FriendsEAT Guide to GMO's. Buy Now!
1x1.trans The Rise and Fall of Daily Deal Sites
1x1.trans The Rise and Fall of Daily Deal Sites

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