Daily Deals Business Contracts in July

The accelerated life cycle of the daily deals business continues apace.

As Groupon, by some accounts the fastest-growing company ever, barrels toward its September IPO (although not without hiccups, including questions about the way in which it reports its marketing costs and a CEO who apparently doesn’t understand the nuances of a quiet period), there are signs that the business may be experiencing a serious slowdown.

When Facebook, an 800-pound gorilla in whatever digital space it sets its sights on, announced four months ago that it would begin offering daily deals to its subscribers, there were predictions that the company would quickly own the world of half-priced mani-pedis and possibly even launch a Groupon killer.

Instead, Facebook quietly announced on Monday (Aug. 29) that it would end the program.

Yelp, the popular crowdsourced review site, also announced on Monday that it will scale back its daily deals offerings.

Although it’s certainly true that Groupon pretty much created the business it now dominates, there are some signs that the business may be experiencing some contractions.

Yipit, a daily deals aggregator that issues monthly status reports on the category, reported that in July both Groupon and LivingSocial experienced declining month-over-month revenue in the top 30 North American markets. Those two players account for approximately 70 percent of the daily deals business, says Yipit.

Additionally, for the first time since the company began compiling data on the industry, the number of daily deals sites actually declined slightly for the month, according to Jim Moran, Yipit’s COO.

But Moran said that the research is hardly evidence of an overarching decline in the space. Rather Yipit’s data suggests that a robust business is simply experiencing a seasonal lull.

In addition, Moran noted that the data shows that almost all of the decline occurred in the first half of the month, during which there was a five-day holiday weekend and, as a consequence, a dip in both deals offered and deals purchased.

August’s numbers “are trending upward,” said Moran, and the shifting of market share indicates that other businesses in the space are growing. Companies like Gilt City and Travelzoo are gaining market share, making the business as a whole less dependent on the fortunes of a single company.

But while Moran sees July’s numbers, as well as the Facebook and Yelp announcements as routine bumps in the road of a maturing industry, a recent report from Forrester Research, “US Interactive Marketing Forecast, 2011 to 2016,” suggests that the entire daily deals industry has an expiration date.

According to the forecast, the business will actually fall victim to its own success. Consumers will become so addicted to the coupons, particularly location-based offers sent at point of purchase, that “they’ll lose practice at considered decisions.”  As one segment of the population becomes incapable of formulating plans that don’t involve half-off coupons, their friends, family and co-workers will grow impatient with them. The forecast predicts that “facing a cultural descent into maladroit judgment, employers (and spouses) will blacklist impulse deals to keep people intentional.”