The Downward Trend in Daily Deals

Market oversaturation, high subscriber acquisition costs to blame?

Is a hypercrash coming to a once hypergrowth market?

A few months ago, every publisher, startup, and human with an email account was starting a daily-deals product. An estimated 700 were launched in the last year, serving every market and niche imaginable. But last week Facebook killed its nascent deals businesses, and Yelp dramatically scaled back its own, while the media hurled a stream of criticisms at Groupon over a suspected internal memo leak stunt, questionable accounting practices, and a rumored $25 billion IPO valuation. Murmurs of daily-deal fatigue, market oversaturation, and high subscriber acquisition costs grew to deafening levels, with market commentators jumping at the chance to trash the fastest-growing company in history.

One major criticism? The rising cost of acquiring subscribers. Prices for daily-deal keyword search terms have skyrocketed, driving industry-wide acquisition costs from $2 a head to higher than $10, says Boyan Josic, CEO of Daily Deal Media. “That’s created a jolt to the ecosystem,” he said.

One response has been minimergers. CrowdSavings, a deals site with $1.1 million in venture backing, did its seventh acquisition last month, and told AllThingsD it plans to buy six more competitors by year-end. In another approach, Gilt City, the local deals hub of luxury discounter Gilt Groupe, in May launched, a pure editorial site designed to attract customers to Gilt’s sites.

Despite cries of saturation and deal fatigue, Josic notes that only 8 percent to 10 percent of American consumers have purchased a daily deal thus far. Maybe the spanking new industry just needs to survive its first media spanking.