Since I wasn't invited to speak at Social-Loco 2011, I'm submitting my 2016 presentation for consideration.
As mentioned in Part 1, I'm attending the Social-Loco conference in San Francisco this week. Instead of presenting, I'm projecting a vision for how location-based marketing will evolve over the next five years. The next topic is daily deals, otherwise known as Groupon, LivingSocial, Google, Facebook, and a long tail of similar plays.
This is part of the broader "location" space, as the deals and businesses are highly localized. It's not LBS, per se, as the primary vehicle is email as opposed to a mobile device. The space is evolving to include real-time deals via mobile apps, but that hasn't been the case to date.
Admittedly, I'm not an expert on this space. Below are my common-sense observations. They certainly could be wrong, as making predictions can be difficult...especially about the future.
So what will happen over the next five years in daily deals? Let's take a look back from 2016.
The Daily Deal Space
The daily deal space was booming in 2011. Google tried to by Groupon for a reported $6 billion. Rebuffed, the search giant launched its own daily deal platform, and Facebook followed soon thereafter. LivingSocial acquired mass users for $10 each in a huge Amazon promotion, demonstrating not only that a clear lifetime value makes it easier to acquire customers but that giving away money is an effective marketing tactic. Not to mention all of the Groupon clones for every vertical imaginable. Unfortunately, daily deal companies have underperformed for consumers, local businesses, and investors. Here's what happened.
First, the daily deal phenomenon was born from a deep recession. Ironically enough, the recession is what inflated the daily deal bubble and the recovery is what popped it. Though we weren't technically in a recession in 2011, it was a recessionary environment for a large percentage of consumers. Unemployment was close to 10%. Housing was going through a double dip, consumer confidence was in the gutter, and the US was both printing money and running huge deficits. Small businesses were struggling the most.
As a result, small businesses resorted to deep discounts via Groupon and the like to drive sales, even if it netted a loss. These deals resonated with consumers, who'd been steadily cutting back on luxuries like massages, fine dining, and other non-essentials. While the economy sucked and people had no money, consumer demand was still building. It was pent up, and the Groupons of the world provided a release valve. When presented with a 50% offer, the spa treatment one so loved became much more reasonable and justifiable. This happened at a magnificent scale, thanks to how mass connected consumers were through technology.
As we all know now, this was unsustainable. Businesses were losing money, consumers became overwhelmed with deals in their inboxes, and it amounted to a race to the bottom. As the economy recovered, businesses no longer needed to offer deep discounts, and consumers were less dependent on them to afford luxuries. The demand on both sides nearly evaporated. Sure, the want for a deal is still universal, but it's no longer a prerequisite to making certain purchases.
The other big hurdle for daily deal companies was market saturation and cannibalization. When Groupon started in 2008, its addressable market was entirely reachable and convertible because just about everyone used email. Given the compelling value proposition of 50% off, especially in the 2008 - 2011 economy, there was no shortage of demand. Hence the meteoric rise. When competing players entered the space, the only choice they had was to take market...to steal Groupon's customers. The daily deal pie was only so big, and it wasn't getting any bigger. It wasn't as if new people looking for a discount were being created or people were discovering email for the first time (with the exception of developing economies). With the economy improving and so much competition, the space had only one way to go.
The only exception was Facebook, and this is because the primary interface is not email but rather the News Feed. When consumers are using email, there are a lot of distractions. Most use it for work, and that is their highest priority. Everything else can wait or be deleted or be unsubscribed to if it becomes annoying. When a consumer looks at their News Feed, however, they're in a different frame of mind. It's about consuming content about their friends and what they're doing. It's much more conducive to deals, especially if it involves their friends. This is why Facebook has carved out a significant slice of the remaining daily deal pie. But the deals are no longer as generous because the space has become commoditized and businesses don't depend on them as much.
Instead, many of the daily deal companies expanded into LBS, as we showed in Part I, where the growth potential was much greater given the rise of smartphones. In addition, the value proposition for businesses of customer loyalty versus discounts was much more sustainable.