[Excerpted from the IMS Digital Updates newsletter, 01/26/10]
One of the biggest trends in 2010 was the new “deal of the day” site phenomenon. What began with the startup known as Groupon, rapidly grew into a full scale phenomenon. By the end of the year, dozen knock-off sites had materialized, and established local sites such as Yelp and Zagat, as well as discount sites such as Gilt City and RueLaLa, had rolled out their own Groupon competitors. Now Google has even announced it is rolling out a Groupon-model deal site. How will the entry of major online powers, such as Google, or the Amazon buyout of Living Social, affect the category moving forward, and how will it change hyper-local marketing?
Last week, LivingSocial made headlines when the site offered a $20 Amazon.com credit for $10. Because of the broad appeal of Amazon.com, by the end of the 24 hour sale period, LivingSocial had sold over 1.2 million vouchers. This was a significant increase over Groupon’s most historically popular deal with GAP from 2010. Since LivingSocial is owned by Amazon.com, this was a deal that benefited both brands even more than the usual voucher deal.
The rising success of these deals is beginning to raise questions about whether they are a valid hyperlocal advertising opportunity. Groupons routinely sell a thousand or more vouchers in a 24 hour period, and Groupon charges 50% of the Groupon sale price to the business running the offer, for a total 75% loss off the voucher face price. Small business owners are also reporting that the Groupon voucher holders are less interested in discovering a new local retailer, and more interested in taking advantage of a one-time deal. Since the local deal sites are only as strong as the brands they offer, national brands who can afford to take major initial losses may become more prominent on the most popular local deal sites. The true local advertisers may begin moving to smaller daily deal sites, where they will have less risk of loss
This raises three questions for 2011: will these “second tier” startups survive? And, if the major deal a day sites continue to take on more national brands and attract more short-term deal seeking customers, will these smaller sites gain more of the hyper-local deals from retailers looking to invest in new customers? And finally, what new deal-a-day opportunities will come up that could take both the national and the hyperlocal markets?
