Has the bubble burst in the daily deals industry? Vinicius Vacanti, co-founder of Yipit, addressed this question while kicking off the second day of the Street Fight Summit in New York today. The Groupon valuation bubble might have burst, but the daily deals industry and the big players in it are alive and well, he said. Businesses are still offering deals. Users are still buying deals. And many deal services are thriving. Gross revenue for daily deals is growing 12 percent per month.
But something did change in the 800-pound deal gorilla in the room, evidenced by the fact that Groupon’s original target valuation of $30 billion has since come down to $10 billion. As Vacanti explained, Groupon’s benefit from press in 2010 has died down, along with its customer acquisition and revenue growth (quarter over quarter growth has slowed from 100 percent in Q4 last year to 10 percent today). “In the last year a lot has changed for Groupon from a PR perspective — a lot of it almost entirely for the bad,” he said.
As more competition entered the market, the cost of acquiring users has risen. The last two years saw the launch of about 800 daily deals sites. Both consumers and small businesses still show interest in using Groupon, but they are also diversifying the deals services they use, effectively diminishing the value of each acquired user, Vacanti said.
Groupon has still seen pretty impressive growth if you ignore the speculation and wild valuations it received earlier this year. But the deal opportunity for Google and others has changed. The window has closed for Groupon-like models to enter the flooded market and compete for customers. “I think the window to buy users has closed,” Vacanti said. Now companies have to diversify (e.g. white-label platforms like Group Commerce or aggregators like Yipit) in the deals space.
According to Vicanti, the model of pegging growth to user acquisition appears to be on its way out. “The question for Groupon is if you cannot grow that user base than you have to monetize users more effectively.” Vicanti pointed to a product like Groupon Getaways as an example of the Chicago-based company pivoting to a higher yield model.
Speculation that large media companies like Google, Amazon and Yelp are shutting down deals programs just isn’t true, Vacanti said. Google and Amazon are continuing to expand deals programs and growing revenue. And Yelp “is actually coming back,” but focusing on bigger deals. Actually, Yelp makes almost double per deal what Groupon makes, according to Yipit data.
“There was a bubble. It was a valuation bubble. There was a window; it was an acquisition window. Both of those have come to a close. But ultimately the industry is growing,” he said.
Photo Credit: Shana Wittenwyler