Are deal a day sites going to last or disappear? An ecommerce expert will be no better at answering this than a crystal ball, and the best anyone can provide at this stage is some informed guesswork. Just about the only sure thing in this whole scenario is that the daily deal sector is going to have to change a lot to survive.
The customers are not the problem, but the industry's current model is broken. This is causing pain for merchants and investors are holding back. As a result, the daily deals sector ended the last year with 798 fewer companies than at the start of the year.
To figure out what's happening, it might be better to look at the angles separately. One angle is the consumer point of view. There's more than a little deal fatigue out there, but most of the pain is being felt by companies which do not focus on a niche. The verticals which carry deals related to specific niches like travel (luxury vacations) or dining (restaurant discounts) are doing quite well.
Besides, there's a lot more where these consumers came from. Barely 8-10% of the US consumer market is using daily deals, so there's a lot more room to grow. The potential can be judged from the fact that despite low penetration, the industry is set to grow up to $4 billion in revenues within 3 years. In other words, all the problems facing daily deal operators are of their own making, starting with a very flawed business model.
The business model is based on getting new subscribers to pay merchants their pending dues from prior sales. In other words, if the member base doesn't grow, merchants won't get their money and operators won't have money for marketing, which in turn means even less growth in subscribers. The sum of it is that daily deals websites cannot exist based only on their existing members. They have to grow or they go out of business.
It's a vicious cycle and websites are shutting down in huge numbers, especially in Asia where thousands of unfunded daily deal sites were launched. Merchants gave 25-65% discounts to customers and huge commissions to the operators. Whatever little amount was due to the merchants is stuck in the pipeline or lost entirely.
Of all these problems, the most serious one is the huge commissions merchants have to pay. How long are deal a day sites going to last depends largely on whether the operators agree to drop this charge. If they don't, merchants will desert and investors will pull back funding. Some of this is already happening, and the only ones left standing will be deep-pocketed companies with enough members and merchants to divide into niche verticals and try out new business models not so dependent on growth.
The customers are not the problem, but the industry's current model is broken. This is causing pain for merchants and investors are holding back. As a result, the daily deals sector ended the last year with 798 fewer companies than at the start of the year.
To figure out what's happening, it might be better to look at the angles separately. One angle is the consumer point of view. There's more than a little deal fatigue out there, but most of the pain is being felt by companies which do not focus on a niche. The verticals which carry deals related to specific niches like travel (luxury vacations) or dining (restaurant discounts) are doing quite well.
Besides, there's a lot more where these consumers came from. Barely 8-10% of the US consumer market is using daily deals, so there's a lot more room to grow. The potential can be judged from the fact that despite low penetration, the industry is set to grow up to $4 billion in revenues within 3 years. In other words, all the problems facing daily deal operators are of their own making, starting with a very flawed business model.
The business model is based on getting new subscribers to pay merchants their pending dues from prior sales. In other words, if the member base doesn't grow, merchants won't get their money and operators won't have money for marketing, which in turn means even less growth in subscribers. The sum of it is that daily deals websites cannot exist based only on their existing members. They have to grow or they go out of business.
It's a vicious cycle and websites are shutting down in huge numbers, especially in Asia where thousands of unfunded daily deal sites were launched. Merchants gave 25-65% discounts to customers and huge commissions to the operators. Whatever little amount was due to the merchants is stuck in the pipeline or lost entirely.
Of all these problems, the most serious one is the huge commissions merchants have to pay. How long are deal a day sites going to last depends largely on whether the operators agree to drop this charge. If they don't, merchants will desert and investors will pull back funding. Some of this is already happening, and the only ones left standing will be deep-pocketed companies with enough members and merchants to divide into niche verticals and try out new business models not so dependent on growth.
About the Author:
Deal a day sites might be facing a downward swing in the near future but not all of them will fail. We are one of the pioneer deal sites and we offer quality products and amazing prices. Check out our deal of the day products today and everyday!
