Ahh predictions posts, truly a misalignment of incentives: the only ones worth reading are the most outlandish. Fortunately, we’re writing about the Daily Deal space, where more developments occur each month than in entire years elsewhere. So we have the unique pleasure of writing outlandish predictions that we actually think will come true.
However, just to keep us honest, let’s take a look at how our predictions from 2010 are faring:
2010 Predictions Report Card
Prediction: We won’t see a roll up in Daily Deals
Verdict: Mostly true. There have been a handful of small acquisitions as the large sites enter new markets, but for the most part, the Daily Deal space has remained completely fragmented, with hundreds of Daily Deal startups operating around the US. We’ve seen only one investment group is form to pursue a roll-up strategy, and it’s not clear yet whether they are serious.
Prediction: New Entrants will gain rapid scale.
Verdict: Mostly false. Groupon, LivingSocial and BuyWithMe are still the only three pure play startups who have gained significant US traction.
Prediction: Gilt City will become a serious player.
Verdict: True. Gilt City is quickly becoming a leader in the deal space, thanks to substantial scale provided by Gilt Groupe, unique deal offerings, and focus on the luxury niche. They currently operating in a half dozen US markets, and most recently, Tokyo.
Prediction: Regulatory Risk was the root cause of why Google-Groupon fell apart.
Prediction: Existing Publishers will become Groupon’s biggest threat.
Verdict: Mostly true. Travelzoo, OpenTable and Yelp regularly outsell Groupon in their markets. Thrillist and DailyCandy look to be serious up and comers. Dozens of traditional print media companies have rolled out deal offerings, to varying degrees of success.
Yipit’s 2011 Predictions
There will be more than a thousand of Daily Deal sites in the US. The cost of launching a Daily Deal offering will continue to fall, while white-label platforms, exchanges and Daily Deal APIs lubricate the market. This will allow Daily Deals to serve as ad units (e.g., Huffington Post) or even as offer marketing in social gaming (i.e., a local version of this).
Groupon and/or LivingSocial will run a Super Bowl ad. More of a hunch than anything, but here’s the maths for how it makes financial sense:
- GoDaddy CEO Bob Parson’s estimated his $2.7 million Super Bowl advertisement resulted in 1.5 million visits. That works out to $1.80 per visit.
- Daily Deal subscribers can generate $30-$50 per year in profit, meaning the service will recoup their investment after a year with a 4-6% conversion rate.
- That conversion rate is well below average, though given the lack of truly national presence, potentially in line.
- As a benchmark, the Google Keyword Tool reports CPC for “daily deal” at $1.45 per click.
Groupon will spend more on marketing this year than AOL did on CDs ever. During the 90s, AOL spent around $300 million acquiring subscribers by mailing out CD-ROMs (at one point producing half of all CDs worldwide). We think Groupon is going to spend more than that in 2011:
- Groupon added 3 million users the first week in December. If we reduce that to a 2 million a week run-rate, assume zero growth, assume only half of all subscribers are paid, and assume a $6 CPA, then Groupon’s 2011 spend is $300 million.
- Assuming Groupon hits its $2 billion in 2011 revenue forecast, $300 million in marketing is 15% of gross revenue, which would seem low for a startup so focused on building massive scale.
Daily Deal Credit Cards Will Arrive. Currently, there couldn’t be more friction for redeeming Daily Deals. The user has to (i) wait for a promotion to end, (ii) print out a physical certificate, (iii) bring the certificate to the merchant, (iv) convince the clerk to accept the voucher (potentially in front of friends, or worse, a date). Groupon, LivingSocial, Scoutmob, Village Vines and others are reducing this friction with mobile apps and advance reservations, but the ideal redemption experience would be provided via the credit card transaction. Expect Groupon to release a branded card, and major Credit Card to dip their toes into the space as well. In fact, MasterCard and Citi are already working on the periphery.
New services launch to focus exclusively on behalf of the merchant. We outlined the opportunity in an earlier earlier post, but essentially a tension will emerge where large daily deal sites cannot simultaneously represent both the merchant’s interest for profitability and consumer’s interest for massive savings. And as Daily Deals continue to swell into a multi-billion dollar market, a new layer of merchant services will form.
Yipit’s 2011 Skepticisms (hype we disagree with)
Daily Deals will go social. There are at least as many barriers to creating a successful social experience with Daily Deals as there are with local services in general. Yelp, Google, Facebook and countless others have been inching away at the social-local opportunity for years, and there’s still along way to go. We believe there will eventually be a compelling social layer to Daily Deals, but doubtful we will see it in 2011.
Daily Deals will go self-serve. Many are betting that the Daily Deal space will evolve into lower cost, self-serve offerings to merchants, where they can run deals at their leisure. Groupon Stores, Facebook Deals, Yelp Check-in Offers and Google Offers provide merchants the ability to have their customers “follow” them for offers.
However, the vast majority of merchant value in running a Daily Deal offering lies in the creation of new, repeat customers. The deep discount and commission paid to the deal site can make profitability of the actual promotion close to breakeven. Not to mention that discount-focused CRM may not be the ideal context for merchant-customer dialog – most merchants probably want their loyal customers focused on something else than discounts.
Until self-serve can also create new repeat customers, its value proposition will pale in comparison to the hundreds of Daily Deal companies out there with fresh lists.