Through a special arrangement, presented here for discussion is a summary of a current article from the Retail Prophet Consulting blog.
One short year ago, the hype around daily deals was electric. In the analyst community, you could barely get through a day without hearing something about players like Groupon, which happened to be growing at a meteoric pace.
While consumers appeared to be prepared to jump on deals, many wondered what the actual redemption rates on deals were at retail. More importantly, statistics began to show that deals as a long-term customer acquisition tool were weak.
My take at the time was regarded as somewhat contrarian. I felt that "deals" were not and never would become a self-sustaining business, but rather that deals, discounts and promotions were and always had been mere marketing tactics. I felt that players like Groupon and Living Social, to name just a couple, had not invented a new business model but simply digitized an old tactic — the price cut — that had existed since the beginning of time.
If there was anything impressive about deal sites, it was perhaps the massive uptake they could achieve with their offers. When Gap ran a $50.00 gift card offer for $25.00, they sold half a million of them. It was like the difference between putting coupons on car windshield and dropping them from an airplane. But the degree to which an offer like this actually paid off for Gap is still unknown.
On Jan. 19, Techcrunch reported that in the last half of 2011 alone an unbelievable 798 daily deal sites folded. By the end of 2011, Groupon's share price had slipped below its IPO level as the company was plagued with accounting questions and reported retailer acquisition troubles.
What lies ahead for daily deal sites is unknown. More may be born and, almost certainly, more will die. A few might innovate and create real value propositions. My guess, however, is that eventually the surviving deal sites will simply be swallowed up into larger online entities. Every major player, including Amazon, Google and Facebook, will have a daily deal arrow in its quiver but they will be reduced to being nothing more than one of many marketing tactics available — not businesses unto themselves.