The Life, Death And Rebirth Of The Daily Deal

Groupon is out of the business of selling consumer goods — an announcement that followed yet another disappointing earnings run from the eCommerce firm. The news took both consumers and marketwatchers by surprise. Consumers were mostly surprised to learn that Groupon was, in fact, selling products at all. Marketwatchers, on the other hand, got a window into just how profound the firm’s troubles have become.

Though, on the basis of its overall earnings report yesterday, signs that Groupon has some serious issues to work out are not exactly in short supply. Groupon missed revenue targets by a wide margin while earnings per share came in at less than half of what analysts were forecasting. Investors, unsurprisingly, were less than delighted by the severe underperformance, and Groupon saw its stock price by a robust 20 percent in post release trading.

“We did not deliver the financial performance we expected during the fourth quarter, and we recognize we must move swiftly to put Groupon back on a growth trajectory,” said Groupon CEO Rich Williams of the earnings report.

Hence, the move is to get back to basics — and the local experiences that the site was initially known for enabling at a discount — and away from the general eCommerce site that it has labored to become in recent years. Once its product platform is cleared away, the company intends to launch a new marketing campaign to remind consumers of what Groupon is really about, in the hopes that consumers will rediscover a love for the daily deals site.

As difficult as it can be to remember now (as Groupon’s share price struggles to crack $2), about a decade ago, the daily deal site was considered the greatest innovation in online commerce. In the mid-90s, it occurred to Jeff Bezos that there might be something to combining the emerging power of the internet with the fact that the USPS shipped books for an incredibly inexpensive price.

As of 2009, when Groupon was launched, there were literally hundreds of variations on the daily deal site springing up on the web, powered by the emergence of smartphones, as well as consumers increasingly used to being wired in and on the hunt for the best possible value at all times. It was difficult to turn on a television and not see either a Groupon commercial or one from its main competitor at the time, LivingSocial.

The logic and appeal behind the wave of the platform was clear: Local businesses like restaurants, nail parlors and the like could use the sites as a platform to connect to local consumers by incentivizing them through the door for the first time with a discount of some kind, then build an ongoing relationship form there. Consumers, on their end, gained access to both a discovery platform and an opportunity to score deals.

Declared the great win-win business proposition of the early 2010s, interest spiked impressively. Venture capitalists anointed daily deals as the way for local businesses to join the digital revolution. Groupon launched its initial public offering (IPO) in 2011 with a share price of $20, more than 10 times what it is today, and brought in over $1 billion. LivingSocial never quite made it to an IPO, but raised more than $800 million on a $4.5 billion valuation.

In 2010, not wanting to be left behind by a market crazed with daily deals mania, Amazon shelled out $110 million to purchase one of the first names in daily deals: Woot.com.

However, a funny thing happened between 2011 and 2012. Daily deals started looking much less like the wave of the future, and a lot more like a passing fad. Many of the unicorns that had appeared almost overnight with massive venture capital-backed valuations suddenly looked less like mythical creatures and more like “unicorpses” shuffling across the landscape. By the second half of 2011, Groupon and LivingSocial were still looking lively, but 798 daily deal sites closed their doors in that six-month period alone.

LivingSocial continued to shrink its employee base until 2016, when it was purchased by Groupon for an undisclosed sum. That sum, though, must have been quite a bit lower than the $4.5 billion for which it was once valued — since, at the time of the acquisition, Groupon noted that the cost made no material impact on its earnings in the quarter.

Amazon kept Woot.com open and alive, as it is to this day. However, after spending nine figures on it, within a year of the purchase, the site mostly faded into the background — with updates few and far between.

So, what went so wrong, so fast?

Saturation was part of the story. Too many daily deal sites offering basically the same things quickly overwhelmed consumers, who couldn’t distinguish between them. That story is actually seen a lot — ridesharing, subscription boxes and meal kits have all seen similar issues around having good ideas that are easily imitated.

Yet, the daily deals trend had a separate problem all its own — namely, that the value proposition, particularly on the merchant side of the platform, was not nearly as good or promising as it initially appeared. Daily deals delivered in that they brought consumers through the door for the first time with that discount, but they didn’t bring consumers back for those second, third and fourth visits where they paid full price.

Instead, seekers of daily deals just chased the discounts, and went to the merchants that offered them. Realizing that this consumer acquisition method was costly without being sticky, merchants pulled back or made their discount offers less generous. This, in turn, depressed consumer interest, causing a network effect in reverse that took a massive bite out of Groupon.

In 2014, Groupon started pivoting away from the daily deals model, and more toward a general eCommerce offering, focused on products for consumers. Given its latest results, though, it is safe to say that this did not turn out to be the magic bullet for which the company had hoped.

So, what’s next?

Many experts have noted that Groupon needs to find a way to sell itself, preferably to a firm with deep pockets. Amazon has been tapped as one possible buyer, mostly because it is the largest eCommerce player in the field — however, it did buy Woot.com for $110 million to not much effect.

As of late, it seems Amazon has been pushing Woot.com with a bit more vigor — with a marketing effort pushed more directly to Amazon customers, and an expanded lineup of offerings, including some greatly discounted Apple products. It could be that Amazon is interested in pushing daily deals once again, and it is not impossible to imagine that it would like an experiences platform to go along with its daily deals “stuff” platform.

More likely, according to marketwatchers, is an attempt by review site Yelp to pick up Groupon with a coupon (we’re sorry, we had to do it), as the two digital brands offer complementary services when it comes to matchmaking digital customers with local services.

Maybe, just maybe, Groupon will even find a way to push forward after all. Groupon’s daily deals offering 2.0, and a more dug-in focus on experience, has the advantage this time of being the only well-known name in the game — as the hundreds of daily deals sites that sprang up in its wake have long since closed their doors, and been written down by their investors.

Without the saturation, it is at least possible that the model could work, since there are fewer ways for consumers to just download 15 apps and spend their time chasing discounts. It might just be able to become the local discovery platform it always wanted to be — simply due to the fact that, at the end of the race, it was the last daily deals site left standing.