Are We Approaching the End of the Daily Deals Era?

**Waqas** · August 30, 2011

The Social Analyst is a column by Mashable Editor-at-Large Ben Parr, where he digs into social media trends and how they are affecting companies in the space.

The golden age of daily deals, led by the unprecedented growth of Groupon, seems to be coming to its end.

That’s not to say daily deals won’t be sticking around for a long time — clearly there is a business in it — but when two major players withdraw from the space and its biggest player experiences a 50% traffic decline, it’s a clear sign that the daily deals market is no longer in its heyday.

Last week, Facebook killed off Deals, its Groupon competitor, after just four months. “After testing Deals for four months, weâ€™ve decided to end our Deals product in the coming weeks,” Facebook told Mashable in a statement. “We remain committed to building products to help local businesses connect with people, like Ads, Pages, Sponsored Stories, and Check-in Deals.”

Facebook, with its 750 million users, couldn’t find a way to make daily deals work. And its not alone: BusinessWeek reports that Yelp is cutting down on its year-old daily deals product. Half of the sales staff will be cut and the company will refocus on its core business of local reviews.

Yelp’s slow withdraw from daily deals is more problematic. It started testing daily deals in July 2010 and has expanded to more than 20 cities since then. Still Yelp, which has more experience with local businesses than almost anybody in the business, simply couldn’t justify staying in the daily deals market.

Groupon Isn’t Doing So Hot

What about Groupon, the company that practically created this market? Surely with 115 million subscribers, it’s doing just fine, right?

According to web analytics firm Experian Hitwise, Groupon’s web traffic has dropped 50% since July 2011. At the same time its primary competitor, LivingSocial, saw a 27% rise in traffic in the same time period. If the trend were to continue, LivingSocial would become bigger than Groupon before the end of the year.

When it first filed for IPO, Groupon was hammered by the media for its unprofitability, high marketing costs and questionable accounting practices. In particular it used something called ACSOI (adjusted consolidated segment operating income) to measure its income without factoring in the staggering costs of its marketing and customer acquisition efforts. It was so convoluted that the SEC launched an inquiry and Groupon removed the accounting metric from its S-1 entirely.

Andrew Mason, Groupon co-founder and CEO, addressed these issues in a “leaked” internal memo, but the issues facing Groupon remain the same: It’s an unprofitable business that’s losing steam in a overly crowded market. When you consider those factors, it shouldn’t surprise anybody that major players are getting out of the space.

There are still a lot of daily deals startups in the market right now. My day isn’t complete without at least three pitching me for a story on Mashable. But while more daily deals startups may be getting off the ground, the big players are clearly realizing that this business is being commoditized by intense competition and fatigue by consumers and local businesses. Fifty-two percent of U.S. consumers say they feel overwhelmed by the number of daily deals emails hitting their inboxes.

This phenomenon is exactly why Groupon is betting the farm on Groupon Now, its location-based real-time daily deals service. Will it help differentiate Groupon in this crowded market? Can it generate enough income to justify the cost of sales and marketing? These questions will soon be answered as the company approaches its IPO.

It seems clear that the golden age of daily deals has passed. The question is: which companies will survive its inevitable collapse?

More About: Column, daily deals, facebook, Facebook Deals, groupon, The Social Analyst, yelp

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