Why TechStars’ Tisch Won’t Buy Your ‘Daily Deal’ Company

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David Tisch, the New York-based angel investor and managing director of startup incubator TechStars, didn’t hold back yesterday during an opening panel at the Daily Deal Summit in New York: “The word ‘daily deal’ is staring me in the face and it scares me. It’s poison to a large audience outside of this room.”

Investment interest in daily deal companies has been flat for some time, though there has been healthy M&A activity. Meanwhile, the stigma attached to the “daily deal” has turned the classification into a scarlet letter for companies. Some of the negativity around the term is likely a consequence of the irregularities found in Groupon’s accounting. But the underlying shift stems from a simpler strategic shift in industry organization.

“The daily deal industry is not an industry; it’s a category,” Benjamin Sun, co-founder of investment firm Launch Time told an audience shortly after Tisch spoke. “One of questions for a Groupon is [whether] they a local marketing services company or… a demand-generation ecommerce company. If they can play both hands, then great. What’s going to be a larger market? I’m not sure.”

In many ways, the “daily deal” circa 2011 was a demand-generation product — the task was to amass a list and drive those consumers to merchants. BuyWithMe’s implosion in late 2011 marked the end of that phase. Without openly admitting failure, Florent Peyre, business chief at Gilt City, made it clear during a panel at the event that the company’s fire sale acquisition of BuyWithMe has proven even less valuable than expected, and is likely the end rather than the beginning of a trend.

“Even though we’ve been very careful about [transitioning], the number of lost users has been very high,” said Peyre. “Just buying databases, unless the price is extremely attractive, is probably not [going to happen again anytime soon].”

The demand-generation ecommerce companies (e.g. the namesake daily deal plays) will continue eke out a profit, but the opportunity for substantial growth there seems to be fading. As the local commerce industry continues to evolve, the window for a deal play to pivot is closing quickly, but here are a few potential, if not waning, options:

–       Local marketing services suit The space is already crowded but, the opportunity to create a single-touch marketing solution for small businesses is large and the trajectory will be less susceptible to the barriers around scale.

–       Deal platforms Local media continues to thrive as daily deal providers and companies like Nimble Commerce and Group Commerce who support the back-end’s of their efforts are thriving as well. Again, this space is crowded but is due for some innovation.

–       Point-of-Sale Closing the purchase loop can provide a windfall of information for local commerce companies and will soon be table stakes for the big deal plays. Navigating the fragmented and terrified world of payments is extremely complex, but the up side here is by far the largest.

Steven Jacobs is an associate editor at Street Fight.

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