great little article, kinda aluded to it in my last post but it got too long
Ahh predictions posts, truly a misalignment of incentives: the only ones worth reading are the most outlandish. Fortunately, we’re writing about the Daily Deal space, where more developments occur each month than in entire years elsewhere. So we have the unique pleasure of writing outlandish predictions that we actually think will come true.
However, just to keep us honest, let’s take a look at how our predictions from 2010 are faring:
Prediction: New Entrants will gain rapid scale.
Verdict: Mostly false. Groupon, LivingSocial and BuyWithMe are still the only three pure play startups who have gained significant US traction.
Prediction: Gilt City will become a serious player.
Verdict: True. Gilt City is quickly becoming a leader in the deal space, thanks to substantial scale provided by Gilt Groupe, unique deal offerings, and focus on the luxury niche. They currently operating in a half dozen US markets, and most recently, Tokyo.
Groupon will spend more on marketing this year than AOL did on CDs ever. During the 90s, AOL spent around $300 million acquiring subscribers by mailing out CD-ROMs (at one point producing half of all CDs worldwide). We think Groupon is going to spend more than that in 2011:
Assuming Groupon hits its $2 billion in 2011 revenue forecast, $300 million in marketing is 15% of gross revenue, which would seem low for a startup so focused on building massive scale.
Daily Deal Credit Cards Will Arrive. Currently, there couldn’t be more friction for redeeming Daily Deals. The user has to (i) wait for a promotion to end, (ii) print out a physical certificate, (iii) bring the certificate to the merchant, (iv) convince the clerk to accept the voucher (potentially in front of friends, or worse, a date). Groupon, LivingSocial, Scoutmob, Village Vines and others are reducing this friction with mobile apps and advance reservations, but the ideal redemption experience would be provided via the credit card transaction. Expect Groupon to release a branded card, and major Credit Card to dip their toes into the space as well. In fact, MasterCard and Citi are already working on the periphery.
New services launch to focus exclusively on behalf of the merchant. We outlined the opportunity in an earlier earlier post, but essentially a tension will emerge where large daily deal sites cannot simultaneously represent both the merchant’s interest for profitability and consumer’s interest for massive savings. And as Daily Deals continue to swell into a multi-billion dollar market, a new layer of merchant services will form.
Yipit’s 2011 Skepticisms (hype we disagree with)
Daily Deals will go social. There are at least as many barriers to creating a successful social experience with Daily Deals as there are with local services in general. Yelp, Google, Facebook and countless others have been inching away at the social-local opportunity for years, and there’s still along way to go. We believe there will eventually be a compelling social layer to Daily Deals, but doubtful we will see it in 2011.
Daily Deals will go self-serve. Many are betting that the Daily Deal space will evolve into lower cost, self-serve offerings to merchants, where they can run deals at their leisure. Groupon Stores, Facebook Deals, Yelp Check-in Offers and Google Offers provide merchants the ability to have their customers “follow” them for offers.
However, the vast majority of merchant value in running a Daily Deal offering lies in the creation of new, repeat customers. The deep discount and commission paid to the deal site can make profitability of the actual promotion close to breakeven. Not to mention that discount-focused CRM may not be the ideal context for merchant-customer dialog – most merchants probably want their loyal customers focused on something else than discounts.
Until self-serve can also create new repeat customers, its value proposition will pale in comparison to the hundreds of Daily Deal companies out there with fresh lists.
Merchants can promote self-serve deals. Presumably this means having the deal appear on the side of the city landing page and included in e-mails sent out. This could drastically increase the content available for Groupon to personalize, however, a merchant will not be run as Deal of the Day more than twice per year.
Fees are 10% for non-promoted deals, 30% for promoted deals… No upfront costs. Deal of the Day is typically 50%.
…but Groupon keeps the “breakage.” This is huge: merchants are paid only for those vouchers that are redeemed. From their Stores FAQ: “When a customer redeems a Groupon, enter the Groupon code into our redemption system. We’ll mail you a check for all redeemed Groupons every two weeks…”
Emphasis on Facebook / Twitter like “Follow” function. The product encourages merchants to get current customers to follow their Groupon Stores page. Further, the CRM functionality goes beyond deals: Stores allows the merchant to “share the latest news, deals or specials, or just invite them to stop by.”
Real Time Push Alerts. The service pushes offers by stores users follow via e-mails like this:
Quality Assured. One risk to self-serve solutions is low deal quality, but according to the page, Groupon reviews all promoted offers.