The story so far….
This may not be the best season for IPOs. Fifteen companies decided to call off or postpone their IPOs last month, according to Dealogic. One company among them is the daily deals giant Groupon. After raising speculation that there may or may not be an IPO anytime soon, last week Groupon announced that its IPO is on track and may happen sometime in November. Remember when Groupon CEO Andrew Mason rejected a cool $6 billion offer to be acquired by Google last December? The daily deals company was in its prime then but I wonder if Groupon now thinks it’d have been better if it had accepted the offer. And the sagging economy may not be Groupon’s only concern.As far as I remember, it may have been around May/June this year that the excitement around daily deals started to die down. (Groupon continues to increase its revenues every quarter but it is also losing money).
Losing the base
Trouble is, initially hailed as a savior for small businesses; Groupon seems to have lost its pull with one of its major success factors-the merchants. Groupon received a lot of flak from merchants who complained about its not so stellar customer service. A lot of them reported losing money on their deals. A recent Harvard/Boston University study found that merchants who run a Groupon deal see an overall 12% decline in their Yelp rating, knocking them down by half a star out of Yelp’s five-star rating system. The other challenge for merchants being customer retention. Sure, a lot of customers come in with the deal the first time but the percentage of returning customers is meager. Could all this be pointing towards a lack of sustainable business model? Was the success just due to the initial hype?
Wary customers may be the other factor in the decline of interest in daily deals. Customers are now bombarded with daily deals emails from Groupon and its clones like Living Social, Yipit, Woot and so many others. I subscribe to two daily deals sites. Groupon and Living Social. Frequently, I get emails about deals being offered in Eugene-which is about 3 hours drive from Portland-where I live. A lot of times, I get emails about deals on events and activities that rank pretty low on my ‘interests’ list-“tickets to cage fighting”, anyone? I could also compare it to Costco where you end up buying something you don’t really need. No matter how tempting a deal, these days, I stop myself from tapping that finger on “buy”.
So I was not surprised when a few major entrants gave up on daily deals (Facebook, Yelp). The omnipresent Google still seems to be in pursuit of the daily deals market with Google Offers already launched in a few US cities and acquisitions made in Europe. Living Social is another daily deals site in addition to Yipit and Woot, which seems to be holding its own.
Customization, Retention, Integration
Still, I am not the one to write off daily deals so soon. Because who doesn’t like a great deal? As with most of the troubled businesses, the idea is great, execution is bad. As a user, I would like to see increased customization from daily deals sites. The companies seem to be addressing the problem of retention, with major players working on loyalty programs to retain merchants as well as customers. The future will also be integrating daily deals with location-based services and social networking. Read more about integrating mobile with daily deals in this interview with Jim Crowley, CEO of BuyWithMe. I am curious to hear some experiences (good or bad) with any of these sites. Comment if you’d like to share them.