During a keynote address at yesterday’s Daily Deal Summit in New York, Yipit CEO Vin Vacanti laid out a trajectory for the deals space, in which Gilt-like flash offers would drive much of the industry’s growth. Vacanti cited the massive growth of Groupon and Living Social’s travel and goods products as evidence, and the numbers are indeed huge: less than 10 months after launch, Groupon Getaways and Groupon Goods accounted for over 150mm and 120mm in annual gross billings respectively.
“When you start to think about the future deals space, you realize that there is a massive convergence happening between Groupon and Living Social getting into travel and Gilt, One Kings Lane and Fab.com,” said Vacanti. “It’s not about daily deals anymore; what these companies have realized is that they’re building a user base that’s willing to consume from them.”
Conceptually, the plan makes sense. With active consumers in tow, daily deal operations should be able to inject other offers into the stream, and whether redemption is in-store, in the mail, or in a foreign destination, the experience will essentially stay the same. “The consumer doesn’t care,” said Vacanti. “The consumer doesn’t think about local vs. ecommerce vs. travel.”
And this is where Vacanti shows his stripes as a deals aggregator. With classifications like local or travel or ecommerce, we’re not talking about consumer segmentation; these are operational divisions that deal with the back-end issues that come with building a business in each sector.
Take Groupon Getaways and the “Groupon Promise.” One of the big drivers in Groupon’s recent accounting error was the inability to project return rates associated with voucher sales. Jordan Rohan, Managing Director of Stifel Nicolaus hit on the travel problem in a presentation on Tuesday: the delay typical in redeeming a travel voucher makes predicting returns exceptionally difficult and the large value of the purchases compounds the issue. The refund dynamic in local is simply different from travel and the structure of a deal company’s “Promise” has to account for those differences.
The underlying problem with Vacanti’s argument is an incorrect assessment of value. As a daily deal company, the most valuable asset in your portfolio is the merchant relationship. It’s the sole value generator in your model and ceasing to build around those relationships would be tantamount to starting from scratch.
Distribution and audience are ghost assets in a digital business. Ask media. Building a revenue model on audience ownership doesn’t work because audience is not owned on the web. Innovation should center on where value is being generated, and for a deals company that is with the merchant.
Remember, Yipit is in the distribution business. Aggregators thrive on fragmentation and the recent consolidation in the deals space has likely given the venture-backed company pause for concern. The solution for Yipit appears to live in horizontal expansion, and as a distribution play it’s a fairly sound strategy. Vacanti declined to comment on whether the company planned to build in wider ecommerce offerings into its product, but yesterday’s presentation seemed like it could have been its first public pitch.
Steven Jacobs is an associate editor at Street Fight.