Are Deals Dying A Slow Death?

A recent article in USA Today confirmed to the consumer population what online marketers have been suspecting for a while — daily deals are in trouble.

Jayne O’Donnell of USA Today reports statistics from Compete, ComScore, and Experian Hitwise, all suggesting that traffic for daily deal giants Groupon and Living Social is dropping like a lead balloon. According to Experian, Groupon’s visits were down 50 percent the last week of August vs. its peak week in 2011, the second week of June. ComScore reported LivingSocial’s visits were down 54 percent for the same period. The numbers could be deceiving, however, since traffic was actually up a healthy 179 percent for Groupon, and 358 percent for LivingSocial, comparing August 2010 with August 2011.

But all is not well in Deal-land. After just four months, Facebook announced on August 26 that it was pulling the plug on its Deals product. A company statement emailed to Reuters said, “We think there is a lot of power in a social approach to driving people into local businesses. We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.” Reading between the lines, Facebook Deals was not a raging success and Facebook couldn’t compete with Groupon.

Yelp felt compelled to write a blog post about its Deals offering right after the Facebook announcement came out. CEO Jeremy Stoppelman said the deals business faces “some real challenges. … We’ve also heard consistently from certain categories of businesses (very popular ones I’m afraid) that daily deals are uneconomic for them, which does raise questions around the sustainability of ‘50% off’ daily deals for these types of businesses.” Stoppelman did write, though, that “contrary to popular belief Yelp is not killing Deals.”

Industry analysts are not exactly bullish on deals, despite Groupon’s forthcoming IPO. Jeremiah Owyang, a partner at research firm Altimeter Group, told Reuters he saw the group buying phenomenon as “a commodity. There are no barriers to entry. It’s just not going to work because everybody offers it and therefore the margins go down.” Compete’s Matt Pace, managing director of retail and consumer products, told USA Today, “With so many new entrants saturating the daily-deals space, deal fatigue may be setting in with consumers.”

Last March, I wrote about my own personal disenchantment with deals and wondered where it would end. At that time I asked: How many discount deals can a consumer handle before he or she glazes over? And what about the merchants – are they getting a fast infusion of business that won’t last? Will it come at such a low price that both their credibility and profitability are damaged?

I’m not about to say, “I told you so,” but it does appear that the glut of deals has hit a high point and a shakeout is in the works. Chances are Groupon and LivingSocial will still be there when the dust settles — but a lot of the other daily deal look-alikes will likely die a slow death.

About Barry Silverstein

Barry Silverstein is a freelance writer/marketing consultant. In addition to writing for ReveNews, he is a contributing writer to Brandchannel.com, the world’s leading online branding forum. He is the author of three marketing books, The Breakaway Brand (co-author, McGraw-Hill, 2005), Business-to-Business Internet Marketing (Maximum Press, 2003) and Internet Marketing for Technology Companies (Maximum Press, 2003). Barry ran his own Internet and direct marketing agency for twenty years. You can find Barry on Twitter @bdsilv.

Website: http://www.barrysilverstein.com