If you don’t live in a hole, there’s a strong chance you’ve come across a group buying site like groupon, living social etc. I’ll go even further and say, there’s a strong chance you’ve convinced yourself to purchase something on one of these sites…I mean anyone would be foolish to pass up such an awesome deal right? Everywhere I go I feel like more and more of these sites are springing up. It begs me to ask the question, is there an end in site for this space?
My impression is that these sites originally sprung up to allow small businesses to reach new consumers by offering awesome deals on local services. Consumers get to try things they may have not otherwise opened the Wallet for because they got such a great deal. Because there is so many local businesses attempting to capture new customers and inking deals is a labor intensive process, this is definitely not a zero-sum game. Hence, we have seen over 200 daily deal sites spring up within the past year. Interestingly enough though, the two big boys (Groupon and Living Social) have over 90% market share.
I think there is a couple things we can take from this:1. This model provides value for both parties, with a definite lean towards the consumer. 2.These types of businesses are relatively easy to set up, but much harder to scale. Between the acquisition of new users and ramping up a sales force to get the deals done its not easy, especially when you’re up against the big boys.
I think this spells a couple of things for 2011. There will be a mass consolidation in this space. I expect many of the smaller companies with greater success will be acquired. Others will eventually get phased out. I suspect that this space will need to continue to innovate by providing value to the businesses. A blunder of many of these deals is they fail to result in customer retention. As a result, players in the space will have to innovate and find new ways to offer value to businesses. I think one way they might do this is provide businesses with valuable information about individual customer preferences which may enable them to improve their targeting efforts.
I could talk for hours about this, but its getting late. Till next time
