Are daily deals dead?
Groupon and LivingSocial are clearly headed downhill.
This is a "winter of discontent" for daily deal companies Groupon (GRPN) and LivingSocial, said Julianne Pepitone at CNNMoney. Groupon, which was lauded as the fastest-growing company ever before it went public last year, has watched its stock tumble more than 80% since its IPO, and CEO Andrew Mason narrowly avoided losing his job last week at the hands of an angry board of directors.
Its rival, LivingSocial, just announced 400 layoffs, about 9% of its global workforce, after reporting a major loss in the third quarter.
It isn't just the biggest daily deal sites that have seen earnings dwindle, said Erik Sherman at CBS News. "Only a few years into its existence, the entire online coupon business is struggling." In the last half of 2011 alone, nearly 800 daily coupon companies went out of business. Whatever their size, these fledgling firms appear "only as good as their last deal."
That's because coupon companies are best understood as an "odd, short-lived fad," said Brad Tuttle at TIME. Now it seems blindingly obvious that selling "$10 off coupons for restaurant meals, manicures, and maid service" isn't exactly a smart business model. The small businesses offering the discounts have soured on them, since the coupons eat into their profits, alienate long-standing clientele, and don't attract repeat customers willing to pay full price. For consumers, too, there's little thrill left in scoring a one-off discount on products and services they might not otherwise have bought. If the market for daily deal sites looked bright, the holidays would be a heyday for them. But in fact, daily coupons are expected to be just a tiny fraction of overall holiday sales.
Things are only going to get worse for the sector, said Dan Mitchel at Fortune. Just a few years ago, Groupon and LivingSocial attracted "incredible hype and vast piles of investor cash," but since there aren't many barriers to entry in the daily deals space, no company can ever truly "have any real market power." And with the economy improving, the sector's appeal may dim even further, said Matthew Zeitlin at The Daily Beast. Coupon sites may simply be better suited to a recession than to an increasingly vibrant economy. Perhaps the next Groupon deal will be an offer of some of its own stock at a steep discount. Unfortunately, "the company's shareholders might just prefer a massage."
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It's time for a reality check in advance of the Chinese e-commerce giant's much anticipated initial public offering.
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