Daily Deals Sites Face Trouble As Industry Grows | Adweek
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Has the Daily Deals Market Reached Its Breaking Point?

Times are tough for smaller sites
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Remember when you signed up for every daily deals site you could find, only to become exasperated by the dozens of offers that now clog your inbox every day? Apparently, the industry feels the same way: According to the Wall Street Journal, the daily deals boom has led to a major daily deals backlash.

Data from daily-deal-site aggregator Yipit.com showed nearly one-third of all daily-deal sites nationwide—or 170 of 530 sites—have shut down or been sold so far this year, the WSJ reported today.

One of the biggest problems facing these daily deals sites is the rising cost of operations. In the early days of the industry, setting up a site was easy and relatively cheap—they just needed a website, some emails and local merchants willing to offer discounts. But as the market grew, the costs of running a site soared—especially the cost of securing customers who are already getting ten other daily deals. Plus, these sites need to hire more and more salespeople to work with the merchants.

The WSJ cites Groupon as an example: In the first quarter of 2010, the company spent about $7.99 to acquire each subscriber who actually redeemed a daily deal. By the second quarter of 2011, that figure had nearly tripled to $23.46. According to regulatory filings, Groupon spent $378.7 million in marketing initiatives in the first half of 2011, up from $35.5 million in the first half of 2010. The company also pays its sales associates about $35,000 a year—or as much as much as $100,000 with commissions, sources said. Smaller deals sites just can’t compete with those numbers.

Even some larger companies haven’t been able to survive in the incredibly competitive market. Facebook, which began testing a daily deals model in April, recently shut it down completely, while Yelp decided to scale back on its own deals efforts.

Whether this actually signals the eventual end of industry leaders like Groupon and LivingSocial is uncertain, but it’s certainly not a good time to be getting started.