Last week, PrivCo's scathing report on LivingSocial claimed their financing round was at a $330 million valuation, down nearly 95%.
This week, of course, saw Groupon stock down more than 25% on disappointing earnings and a horrendous Q1 outlook. A day later, Groupon (GRPN) CEO Andrew Mason was forced to resign, or, as he jokingly put it:
“I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why…you haven’t been paying attention.”
So, is that the end of the Daily Deals market? Not really.
The Daily Deals market is really, really hard for several reasons:
- There's no barrier to entry
- There are few, if any, economic benefits to scale
- Merchants have had, at best, mixed results
- Consumers are trained to ignore emails, particularly if the initial deals are not compelling
So, why is there a future for Daily Deals?
There's still a huge opportunity in the hyperlocal market. Local merchants need ways to drive foot traffic to their restaurants and shops. The old models of yellow pages, newspaper ads and classifieds don't work any more (and in many cases never did). A regular web presence is important when consumers search for you by name, but doesn't help you get their attention with special offers.
At the same time, consumers want deals. They've been trained to look for discounts, ecoupons and other deals.
So, what might a successful Daily Deal product look like?
It's probably small (or small-ish). One of Groupon's failings is that it tried to scale quickly to dominate the space. In doing so, it put too many sales rep feet on the street and put too much pressure on merchants to do deals that really didn't make sense. If you had fewer reps focusing on higher quality businesses and trying to understand how to make those deals work for both merchant and customer, you'd have a better product. That product might have lower margins and smaller revenues, but it might be sustainable.
It's probably not just an email blast. I never see Daily Deal messages as Gmail is good at sorting them into my \Promotions folder, which I rarely view. A Daily Deal offer might work better if it were worked into my workflow. For example, when I use Yelp, it might let me know that a restaurant in a cuisine I've looked up previously is now offering a deal.
It's more personalized. Yelp knows a bit about me, as do Foursquare, Netflix, Seamless and Gmail. If you know the sports that I follow, the cuisines I eat, the areas I visit (work and leisure), the music I listen to and more, you can create much more compelling deals for me.
The winner in the Daily Deals game will be the company who can leverage analytics and personalization in the ways that Amazon has done for ecommerce. Understand what I want and you can solve my needs and those of the merchants. And there's still a pretty big pot at the end of the hyperlocal rainbow.