Are deals, distribution or data the key to “daily deals”?
Expressionism, New York, NY
Originally posted to the newsletter on April 28. Sign up here.
In an article about Yelp’s plans to go public despite the booming private market, a thought about daily deals:
Mr. Stoppelman says he believes that daily deals emails become less effective over time, and as more competitors in that area come to scale, “that business will get less exciting. It seems better to serve deals when someone is actually searching for them.”
Yes, but no.
Yes, that daily deal emails (in their current structure) will become less effective over time.
But not necessarily that it’s “better to serve deals” when someone is actually searching for them. It depends on who you’re presenting deals to. If your business is already in someone’s consideration set and they are just looking for a deal to save money, that’s probably not a profit-maximizing deal for the business.
But if someone is actively looking for a something to purchase, hasn’t decided on which merchant to use, you’re not in their consideration set, and the deal swings the decision, that’s more likely to be a profit-maximizing deal for the business to offer.
That purchase decision may be delayed (buying a couch, going to a restaurant, booking a trip, going to movies), but it may also be time- and location-sensitive (picking a place for lunch, buying a shirt, etc.). Knowing the intent of the person you’re presenting the offer to matters immensely. Tons of daily deal clones have confused the basic value proposition. Deals do not have to be daily, they do not have to be by email, and they do not have to be limited one-time offers. Daily deals are structured in their current form to drive conversions, but it’s not the only way.
Holding size constant, better data -> better targeting -> better offers -> higher profits. The daily deal race might be a distribution battle at the moment, but will be a data battle pretty soon.
And let’s be honest: Facebook probably has the best data, and their recent launch of Facebook Deals could be killer.
Why? Better data about who / how / when / why to present deals. Better social / viral hooks. Built-in distribution of the millions of Facebook users. Facebook will have to build up the deals selections and build a sales staff to find merchants and deals, but that’s possible to do.
There’s a key point underlying this: daily deals is more of a feature than a business. Yes, Groupon earns millions in dollars (and is valued at billions) but Groupon is an outlier, created at a perfect time, and copied so incessantly that they will have to innovate quickly in order to compete with new entrants. Deals and distribution is a defense, but it’s not enough. And Groupon knows that, and is surely working on extending their competitive advantage by building or buying ancillary businesses.
And that’s when daily deals gets interesting.
