It's Adapt-or-Die Time for Daily Deals Firms

The squeeze is on

Lindsey Holmes, CEO of local marketing firm LCH Business SM & Tech, says it’s important that small businesses consider the risks—like an unserviceable flood of customers that might produce a rash of bad online reviews or a loss-leader that doesn’t pan out ROI-wise—before running a Groupon or LivingSocial. “If they cannot take the risk, I advise them to look at other digital channels,” says Holmes.

Facebook Offers gives merchants another option if they think Groupon and LivingSocial are too risky. They can post an offer for free but need to fork over cash if they want it pushed into users’ news feeds. The Menlo Park, Calif.-based social giant says 42 million users—about 4 percent of its 1 billion base—claimed offers in the last year. (Redemption rates are not available.), Brooks Brothers, Victoria’s Secret and Rosetta Stone are among the brands that have been using the platform since it launched a year ago.

“We’ve tried a lot of things,” says Nicolas Franchet, Facebook’s head of e-commerce, global vertical marketing. “Sometimes they’ve worked, sometimes they haven’t. We feel that 42 million people engaging gives us a strong enough signal to see there’s a there there. We definitely want to capitalize on it.”

One quiet player on this front that may have a big opening if no one else fills it is Yelp. Per comScore, the local business reviews directory had roughly 39 million U.S. unique visitors during January, well ahead of the sites for Groupon (13 million) and LivingSocial (7 million). The company has a local business marketing team that’s expanding in its New York and London offices.

Launched in 2010, Yelp Deals ran 45,000 offers on its platform during Q4 2012—a substantial increase over the 17,000 the firm garnered during the same period in 2011. Yelp Deals is a self-service platform, so the San Francisco-based company doesn’t need boots-on-the-ground salespeople like Groupon and LivingSocial. “Business owners are in control of the discount they want to provide,” says Vince Sollitto, Yelp communications lead. “It can be 50 percent off or a $20-for-$30 deal, etc.”

So it’s going to be intriguing to see which of these platforms accelerates or sputters this year, and whether LivingSocial or Groupon authors a comeback story or suffers an ugly fate in a crowded environment. An undertold tale about the two biggest players is that they are building fresh, massive email lists that could someday be extremely attractive to e-commerce companies as an asset acquisition.

For instance, if LivingSocial does fail and needs to be liquidated, Simms Jenkins, CEO of email marketing firm BrightWave, estimates its 72-million-strong email list could be worth as much as $921 million. “[It’s] a very valuable asset because millions of consumers have granted permission to receive special email offers,” he adds. “Presumably, a large percentage has purchased from the list, and, in general, it is a fairly active and clean list.”

Keep an eye on your inbox to see if that deal goes down. 

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