Microsoft recently launched Bing Deals, joining in the increasingly crowded market of deal-a-day sites. It seems like every day some big time player announces their own version of this craze, made popular by current giant Groupon. The real question though, is how long can Groupon stay on top, and how long before the market is so saturated that the concept loses it’s appeal?
When Groupon supposedly turned down Google’s offer of $6 billion late last year lots of people starting taking notice. In January, Amazon-backed deal site Living Social did a deal for a $20 Amazon gift card for $10. The deal attracted a lot of attention and indicated that for the right deal any of these sites could make some money. I, like many, purchased said Amazon gift card and signed up for Living Social’s mailing list. I have been receiving their e-mail and Groupon’s for quite some time, but to this date have still only purchased that one deal.
More recently, local deal sites have started to crop up. It seems like some newspapers are implementing their Groupon-style deals for local businesses, which give consumers yet another deal-a-day site/newsletter to follow. Now that I am getting about five of these e-mails per day, the novelty is wearing off.
Even though I have only bought one deal to this point, I used to be excited and intrigued by the reveal of the day’s deals. But since 9 out of 10 of the offers don’t even pique my interest a little bit, the excitement is waning. Also, despite the “deal” aspect, discipline is required to not spend stupidly. A lot of these “deals” are things or places that people wouldn’t normally go, so while it’s easy to just start ordering things, one has to remember that these things aren’t free, and often carry with them some extra cost to redeem1
Then there is the downside to businesses. There was an article in the Chicago Tribune a while back2 that talked about some local businesses suffering some Groupon growing pains. A snack shop saw an influx of people coming in to redeem a $10 gift card3 that they had purchased for $5. Most patrons were careful not to go over the $10 limite and even went as far as to put things back if they went over. After the bulk of the coupons had been redeemed, business went back to pre-Groupon levels almost exactly. Meaning that the snack shop essentially gave away tons of free merchandise without seeing an increase in overall sales.
Another example was a hair salon that was offering deeply discounted services. During the redemption period the salon was booked almost constantly. While this sounds like a good thing, regular clients were unable to make appointments, causing a lot of angry phone calls. And again, after the redemption period business hadn’t really increased.
These two examples clearly illustrate that these deals seem to attract a particular type of customer, one that perhaps many businesses aren’t looking for.
Then there is the user loyalty issue to the deal sites themselves. Sure, if a user can refer friends to a particular deal they can get that deal for free, but there doesn’t seem to be any long-term reason to be loyal to a particular site4. Users will buy based on the deal and not based on loyalty to a particular site5. So until the deal sites can find a way to keep people coming back, it could be a difficult long-term business model.
Along the same lines, there as to be some question about long term appeal. These sites are very trendy right now, but like social networking sites, there is generally a lot of buzz for a while. Eventually it will become just another daily e-mail that most users delete without looking at. I am sure that Groupon has a long line of companies waiting to get their deals out there, but if businesses start to talk and tell each other that it’s not as lucrative as originally thought then maybe sustaining this long term won’t work. Things like Facebook and Twitter attract people because of the interaction and fact that they are free, how does a site like this keep people coming back forever?
- For example, a $20 gift card at a restaurant could end up costing more money out of pocket if people dine with their significant other [↩]
- It is no longer available [↩]
- Or something like that [↩]
- Perhaps there should be some some of longer term referral program, like refer 100 total deals and get the next deal free [↩]
- Meaning if I see a deal on Living Social that I like, I won’t opt to not buy it because I like Groupon more [↩]