A few years ago it seemed like the daily deal industry was in the news everyday. It seemed ground breaking and disruptive in a time when the word disruptive wasn’t used ad nauseum. But the question that comes to mind is what happened to this industry and is it still thriving?
Daily deals seemed like the answer for fledgling brick-and-mortar businesses. The business signs up, offering to provide their products or services at a substantial discount, but still at a slight markup. The deal company gets a cut of each transaction it brings in by offering the deal on its website. Over time, the deal website becomes a platform that consumers associate with good bargains, which garners more traffic.
It seems somewhat risky for businesses, but most small business owners would agree that offering a reduced rate (but not netting negative) in exchange for exposure is just a cost of the trade. Groupon pioneered this business model and within months there were many new upstarts in the market. But interest in daily deals from businesses has clearly died down significantly. The graph below shows searches in the US for “daily deal” or “daily deals” and, after a sharp peak in late 2011, there’s a continual decline that indicates a dying industry.
If daily deals result in exposure for the business, savings for the consumer and profit for the deal company, what’s wrong with the model? Well, after analyzing the outcomes from a number of daily deals it becomes clear: companies like Groupon and Living Social take far too much from businesses. And sometimes the problem areas of a daily deal agreement don’t seem all that apparent.
The infographic below emphasizes some of the hidden costs of doing business with a service like Groupon. Here are some of the factors a business might not immediately think of, but could definitely result in one of the many daily deal horror stories we hear of so often these days. Here are the top three factors that can cause a daily deal to go awry for businesses:
Now we’ve painted a bleak portrait of the daily deal industry here, and it’s a portrait congruent with the data, which shows a prominent decline in the demand for and support of daily deals. While this is all true, we do believe there’s still a place for certain categories of deals. Innovative eCommerce products find a home on the design focused product deal site Touch of Modern. Software deal sites like Mighty Deals and StackSocial can be extremely beneficial to those selling SaaS products or standalone software resources. Because these use-cases don’t involve the overhead of maintaining a storefront, there’s much more room for profit and much more need for exposure, because on the Internet passerby’s aren’t source of traffic and interest.