Projections Lifted for Daily Deal Industry

Is the daily deal phenomenon here to stay or is the market for this promotional tool about to experience some big changes? Earlier this year, about 530 companies were competing in the space. That number has already dropped to 170. While the number of companies facilitating deals might be shrinking, new research indicates the industry has some growing to do.

Lately, all eyes have been on industry leader, Groupon. The company still has plans to go public this year. But the latest figures from the company are raising some questions. According to new public filings with the U.S. Securities and Exchange Commission, the company sold 1% fewer deals in Boston during the 2nd quarter of this year than it had in the 1st quarter. At the same time, both revenue and numbers of Boston subscribers grew. But overall, the firm’s revenue growth slowed significantly in August. Some analysts say the firm’s cost of acquiring each active subscriber has risen from $7.99 last year to $23.46 this year. This trend doesn't bode well for Groupon's future.

Many industry operators comment on the difficulty and expense of acquiring subscribers. Groupon’s muscle in this market will certainly help to maintain its leading position, especially when better heeled operators, like Facebook, have backed away from this sector.  But Groupon may be facing more competition from local media companies. Their market advantage is their connection to thousands of subscribers. And these companies are expected to launch their own daily deals with local vendors. BIA/Kelsey analysts feel so positive about this industry that they’ve lifted their growth estimates and expect to see consumer spending on deals rise to $4.2 billion by 2015. Mark Fratrik, BIA/Kelsey vice president and chief economist notes that the firm sees a ‘ceiling’ on the number of deals a consumer might buy but this industry is still ‘young.’

The key question is how national competitors like Groupon will fare as they compete with local media sites. It will be fascinating to watch the situation unfold over the next few years.

[Sources: Winkler, Rofle. Groupon Needs to Get Its Growth On. WSJOnline​.com. 13 Sep. 2011. Web. 21 Sep. 2011; Alspach, Kyle. Groupon IPO filing shows 1st-ever drop in Boston sales. 10 Aug. 2011. Web. 21 Sep. 2011; Raice, Shayndi, Get ‘Em While they Last.  Wall Street Journal. 19 Sep. 2011; BIA/ Kelsey Revises Deals Forecast. Marketwatch​.com. 13 Sep. 2011. Web. 21 Sep. 2011]

 

Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-owner of several small businesses in the health care services sector.