Can Daily Deals Keep Pace?

Samy Aboel-Nil has been watching the daily deals space for more than 10 years. He watched as the first attempts to create and scale the business flopped along with the dot-com bust and, more recently, he’s been watching for the past couple of years, first as a founder of FanForce, which provided the technology for anyone to launch their own daily deals services (and so they did), and then as the coo or Tippr which uses FanForce technology to power its own deals site. Tippr has been carving out a deals niche, working with publishers to power their sites in addition to its own. From his technology perch, he has a unique view of the daily deals landscape.

The industry has grown at blinding speed.  We see that continuing. There is research done by BIAKelsey about the group buying market size and where they think the market size will be. They have some metrics in terms of the size of the market and the rate it will grow. They think the market will hit $3.9 billion by 2015. Groupon and LivingSocial are spending their hundreds of millions, buying an audience. When they started, two years ago, it cost them $10 or less to acquire a customer. It now costs over $30. That’s a 300 percent increase in less than two years. Even they can’t sustain that kind of cash spending. I think that we’re at group buying 2.0, which is all about publishers. If you tried to acquire audience as big as NBC’s or Fox’s or Belo Corp.’s, you’d be talking about huge numbers. They don’t have to spend that money because they already have that audience. They already have sales teams. One of our publishers in Baton Rouge, he has a much smaller list, but his list is focused on restaurant and fine dining.  He is able to appeal to the best restaurants because of the quality his lists. He has focused on foodies. He competes well with Groupon in his market. That kind of specialization provides better value to the business.

Overall, I think before the Groupon IPO, everyone was aware of Groupon. But now with the S1 they had to file, everyone has access to all that interesting data on the man behind the Groupon curtain. Now people can see where the magic is. Look how much money they are spending to buy eyeballs. Merchants clearly like Groupon. You see the bleeding-leading stories about a merchant who had a horrible experience, but the number of merchants repeating deals is staggering. The model is right. Maybe the economics are in question.

Our belief is that there is really only room for a few huge horizontal consumer brands; Groupon and LivingSocial have those spaces. But there is a lot of room for publishers that already have a brand that’s established and trusted or niche-focused. I’ll subscribe to Groupon but after that, I’ll look for a niche-targeted site that has things in my interest — outdoor activities, stuff aimed at college students — those are areas of opportunity.

We see a tremendous amount of action on our own sites coming from mobile devices, in particular, smartphones. In fact, 40 percent of mobile device traffic is iPhone. It’s increasing the number of people who are viewing and buying. We’ve optimized our sites for mobile devices. It changes the way the deals look, the way you write the deals. We see that as being very important. A very high percentage, 80 percent of purchases happen within five or 10 miles of where a person lives and works. With mobile, you can expand that; you can get the spontaneous buyer maybe even traveling in another city, maybe more likely to use their mobile phone to make an impulse purchase. I don’t think it cannibalizes sales. I think it’s incremental.

It’s too early to tell. Because it messes with the model a little bit. Scarcity and limited time are a part of the Groupon model. Now we’re a tech company. If our customers want to do that, we are going to enable them to do it. But the only way for daily deals sites to offer deals on the spot is to stockpile deals. The way that you have all that inventory is that you make deals run a long time. When we sell to a merchant, part of the pitch is that we are not resetting your price point. It’s a limited thing. It doesn’t reset your price point because it’s not always available on demand whenever you want it. If I am Joe’s Pizza, instead of selling 500 coupons for 50 percent off, I’m offering through Groupon 50 percent off every single day before and after lunch. You’re training your customers the wrong way. The other thing in that vein is that the traditional group buying model is advertising: Joe is willing to give up 500 vouchers at a certain discount because he’s paying to advertise his business to an enormous list. He pays a certain amount of money to get exposure. When you run with Groupon now, all you’re getting is the discount buyers. The counter point of view that I’ve heard is, at the end of the day, if we restructure the economics of the coupon, it might still be better for Joe if customers come at 10 a.m. to get a slice of pizza because, even if they come in every day, no one is in there at 10 a.m. eating pizza.