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Daily deals has exploded as a new category of online advertising, with the top players on track to ring up over $5 billion in revenue. Until now, Groupon and LivingSocial have lived off email distribution. The next frontier and battleground is in mobile.
Instead of a single offer being delivered to thousands of consumers’ computers, consumers are asking for and receiving deals tailored to their desires and location that need to be used right now and right here. Groupon and LivingSocial are in a race to own that most immediate connection, with each carving out a unique strategy.
LivingSocial was first out of the gate. It piloted Instant Deals in its home base of Washington, D.C. starting last month. Instant Deals promised consumers the opportunity to find nearby deals with a tap of their smartphones. As befits its challenger status, LivingSocial is going aggressive. For one day, Friday, April 15, consumers will be able to purchase lunch deals for $1. Using LivingSocial’s GPS-enabled app, consumers will be able to access a list of restaurants within one half mile of their location that are participating in the promotion.
According to Maire Griffin, a spokesperson for LivingSocial, more than 100 restaurants all over the city are participating in the $1 promotion, with heavy concentrations in and around Dupont Circle, Georgetown and the city’s Chinatown. The program is destined to make a splash, much like an earlier LivingSocial promotion that gave away a $20 Amazon gift card for $10. That sold over a million in a day and swelled LivingSocial’s registration rolls. The Instant Deals promo is destined to draw plenty of attention to the new product.
Groupon, meanwhile, is betting on its new mobile app, Groupon Now. It was the subject of a lengthy and mostly adulatory Businessweek profile that declared it will do nothing less than “transform humankind’s lunchtime habits but also to alter the topography of the multibillion-dollar market for local commerce.” The app has two buttons. One is for “I’m hungry” and the other for “I’m bored.”
Julie Mossler, a spokesperson for Groupon, says the new service, Groupon Now, will have a “beta launch within the month” in Groupon’s native Chicago where the company has a subscriber base of 2 million, more than the city’s two daily newspapers combined.
The move into mobile is inevitable. Both companies need to find ways out of the in-box. The reason: the proliferation of deals sevices has made the in-box filled with offers. The problem is location-based deals are far more difficult. Already in New York Groupon appears to struggle to come up with relevant offers. A subscriber living on the Upper West Side of Manhattan continually gets small-bore food discounts in far-flung neighborhoods in the outer boroughs. When it comes to mobile, the need for a deep well of merchants is even more heightened. Even the difference of a few blocks can be a dealbreaker.
It also presents business model challenges. Groupon and LivingSocial delivered group-buying deals to millions of inboxes. Consumers liked it (except when they neglected to redeem the vouchers before they expired); merchants mostly liked it (except when voucher-bearing bargain hunters displaced regular customers). But the big winners in every deal were the deal distributors, which incurred very little risk. That is the exact opposite of the new and improved business model being rolled out. Instead of fending off companies clamoring to be the next featured deal of the day, both companies will have to deploy beefed up sales forces just to create the deal inventory that will be required to make their instant deal businesses compelling.
Technology will also be a factor in whether either company succeeds in this developing category. The landslide of daily deals startups of the past 18 months is due almost exclusively to the fact that the barriers to enter this business are minimal and the technology required is fairly rudimentary. But that’s not true of the technology required to field a successful geo-deal service, which will need to accurately locate both consumer and nearby deals and be user-friendly enough so that merchants can upload their own deals.
According to Mossler, Groupon Now will be fluid: merchants will have the ability to create and customize the deals in real time and on the fly. So if a restaurant has nine tables available during lunch on Tuesday, it can post that deal, limit the offers and set a deadline for redemption of 2 p.m. Mossler said that rather than updating the existing Groupon app, the company has developed an entirely new app for Groupon Now that consumers can download to their smartphones for free. LivingSocial has updated its existing app to include an Instant Deals button.
In order to combat any consumer reluctance to spontaneously purchase deals, both companies will offer refunds to their instant deals customers if they are not able to redeem the deal within the time allotted. “We know that sometimes life gets in the way,” said Griffin. “Customers can purchase the deal no risk. If something happens and you can’t make it. We will refund you.”
The big wild card in all of this, of course, is consumers. Mason is sure they want a two-button option to figure out their next move on the go. That sounds reasonable. But the logistical and practical challenges to making this leap are far more than the impressive original trick Groupon and LivingSocial pulled off on the desktop web.
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