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Are Daily Deals Done?

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Are Daily Deals Done?
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The daily deal space is hotter than ever, or is it? While many data-focused marketers levied criticism at Groupon for driving first time trial but not much more, daily deal competitors Groupon and Living Social racked up impressive growth figures.

Now the rapidly maturing business model may be encountering difficulty. Usually the first signs of business distress can be noticed in the defection of key executives or the sharp increase of share sales by insiders. As reported by USA Today, the ratio of insider sales to purchases spiked to 100 to 1 during the 90 days ended in late October. During that time, 301.7 million shares were sold compared to only 3.2 million purchased.

Most telling was the sell-off by New Enterprise Associates on September 13. The firm was among the first venture capital firms to invest in Groupon, and sold about 23% of its stake. Between the time of the sale and the end of October, Groupon shares declined 22%.

The news from Groupon’s earnings report in early November confirmed its current struggles. Co-founder Eric Lefkofsky partially blamed poor performance on recent changes in Google’s Gmail which surppressed its promotional email to consumers, saying  “that created some open-rate declines”. To reverse this trend, Groupon executives shared during its earnings conference plans to test a new version of its website where email submission was not required to take advantage of offers. By relieving friction from its engagement process, Groupon seeks to expand its reach for new customers.

For the record, Groupon’s net loss for the quarter ending October 31 was reported at $2.58 million, up from the prior year figure of $1.65 million. Revenue increased to $595 million, up from $569 million. At the same time, LivingSocial reported a $26 million third quarter loss on revenue of $120 million. Book value at Living Social fell from nearly $1 Billion in June 2012 to less than $50 million according to a filing from Amazon, a 31% shareholder in Living Social.

The daily deal business model has been exposed as more tactic than business strategy, and the inability to bridge its original offering to something more sustainable is the root cause of Groupon’s results. One-time loss leader offers may still be a good tactic to acquire new customers, but have limited value in driving profits over time. Now, it seems the market is moving on from daily deals.

Seems the most attractive thing to do these days with a daily deal is to “sell”.


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