Daily deal sites hit $158m sales - but shake-out ahead

Our daily deal scene is booming, according to research supplied to Keallhauled by Datamine.

Between December 2009 and August this year, an estimated 604,000 New Zealanders spent a total of $158 million though group buying sites in 3.9 million transactions (or an average of around $40 per deal).

But with so many crowding in, how long can the party last?

Are the numbers solid?
"Datamine's estimated unique customers feels in the ballpark, perhaps a bit low," said James MacAvoy, head of strategy and new ventures for Trade Me, whose Treat Me deal site launched in March. "We’re over 500,000 uniques, so it would mean 80% of unique customers are on Treat Me."

Shane Bradley, chief executive at GrabOne, said Datamine's figures gelled with his own company's competitive analysis.

All-comers have acknowledged that GrabOne is the leader of the crowded daily deal pack.

GrabOne: $1.5 million a week
Mr Bradley told NBR his site's revenue continues to grow, has now hit $1.5 million in New Zealand (GrabOne is now 75% owned by NZ Herald publisher APN, the balance by Mr Bradley; the site has expanded into Australia since APN's investment).

That compares to December last year, when the site was grossing around $500,000 a week (deal sites' sales commission rate varies between 25% and 50%).

Grabone now employs 100 staff (including 20 across the Tasman). Mr Bradley claims it holds 65% local market share. 

Click to enlarge.

Click to enlarge. All of the sites publish the number of items sold, from which dollar sales figures can be extrapolated, but Datamine's Mike Parsons told NBR, used independent data sources, including information from merchants, and statistical weighting techniques to give an accurate picture of the market "irrespective of what the site publishes as being true." 

Too many, too many, too many
New Zealanders may be spending more on daily deal sites, but it's clear to even the most casual observer that too many are clogging Kiwis' inboxes - many replicating each other's deals (read Exclusive golf club spreads itself around town for but one example).

Setup costs might be low, but in a crowded field, deal sites have to spend more on marketing to stand out, and shave their margins onsales to attract merchants.

Since the first group buying sites launched in mid 2009, numbers have proliferated.

There are the biggies, all backed by traditional media companies chasing new media revenue -  GrabOne (APN), TradeMe's TreatMe (part of the Fairfax stable), and Cudo (part-owned by MediaWorks).

Then there are US imports Groupon and Living Social - the nuimber one and number two in North America.

Yellow (with Groupy) and Yahoo NZ (with Spreets) have also jumped in.

Then there are scads of smaller players. Here's a sample of the sites surveyed by Datamine:

• 1 DAY
• 3 DEALS
• 6SHOOTER
• CATCH OF THE DAY
• CUDO
• DAILYDO
• DAY DEALS
• DAYSALE
• DEAL 4 U
• DEAL A DAY
• DEAL EATER
• DEAL MATE
• EZY DEAL
• FIRST IN
• FLOCKING GOOD DEALS
• FREE DEALS
• GAME A DAY
• GRAB ONE
• GROUPON
• GROUPY
• I LOVE DEALS
• LETS GET IT
• LIVINGSOCIAL
• OFF THE BACK
• ONEDOLLAR
• SHORE DEAL
• SNATCH A DEAL
• SPREAD A DEAL
• SPREETS
• TREAT ME
• WOWCHA
• YAZOOM

In the US, there's already been a shake out. Groupon has postponed its much vaunted $US20 billion IPO. And one-third of all daily-deal sites - or 170 of 530 - have shut down or been sold so far this year, The Wall Street Journal reported earlier this week, quoting a survey by an aggregator, Yipit.com. 

Mr Bradley notes that 530 was only the number of daily deal sites that Yipit was actively tracking.  "There is likely to have been at least 3 times that in the US alone, and they would have all folded."

Locally, there's only been one high-profile casualty, with bargain shopping site 1-Day closing its daily deal off-shoot 1-dayout (the less known Dealeater also ate the dust).

ABOVE: Everyday there are dozens of deals, but many are replicated across numerous sites - even at times on the same day. Today (Thursday), something called Stand Up Paddling is all the rage across GrabOne (84 lessons sold at $25 a pop when Keallhauled checked in), Cudo (27 sold at $32) and TreatMe (380 sold at $19). Click to enlarge.

Bait-and-switch
Industry commentator Vaughn Davis has a harsh verdict on many of those that remain.

The owner and creative director of social media and marketing consultancy The Goat Farm told Keallhauled, "While auction sites and social networking channels are innovating and adding customer value, the daily deal sites seem to be less relevant and less worth my time with each week that passes.

"This isn’t helped by the proliferation of bait-and-switch advertising – clicking on an ad promising 'great deals on fish and chips in your town' to end up at an offer on leg waxing was a memorable user journey, but not in a good way." 

NON-EXISTENT DEALS: Auckland dad Dylan Reeve was annoyed when he searched Google for "zoo" a paid ad for Grouponnz.co.nz appeared (at right in screen shot above, click to enlarge) saying "Great Offers on Zoo Tickets. Save up to 70% with Groupon Now!" A map of Auckland appeared above the ad. Yet GroupOn NZ had no zoo offer. NBR found the same result. Mr Reeve lodged a complaint with the Advertising Standards Authority (ASA) after Yahoo's deal site, Spreets, ran a similar Google Ad Words campaign for a non-existent deal. The ASA ruled the matter settled after Spreets apologised (saying the Google campaign was run prematurely) and withdrew its ad.

Prosecutions predicted
Treat Me's Mr MacAvoy said such "distance between marketing and fulfilment" has attracted ASA and Commerce Commission attention..

"We think here’s a good chance they will be seeking to make a couple of prosecutions to send a clear message to the marketplace," said the Treat Me boss.

A Commerce Commmission spokeswoman told NBR the watchdog was "aware of issues" around some daily deal sites, but had no immediate comment on whether or not the agency would take legal action [UPDATE: The commission has now confirmed it is investigating new complaints about daily deal sites].

Free advice
Daily deal sites can't just hope one heavily discounted deal will generate good word of mouth and repeat business, Mr Davis said. 

If they want to do better, daily deal sites should try "Simple tactics like loyalty cards, next-time offers and friend get friend can turn a fling into a relationship – providing the proliferation of the daily deal operators doesn’t devalue the sector so much in the customer’s mind that the offers and business featured become the coupon-driven equivalent of the $2 shop."

Treat Me's Mr MacAvoy said mobile would be a game-changer in the crowded market. (Groupon has previously told NBR that it's preparing a location-aware mobile app for its NZ customers, which it promised by year's end).

Two or three left standing
But whether or not daily deal sites sharpen their act, or find an original angle, it could just be a case of too bodies in the room.

For his part, Mr Bradley sees just two or three sites surving long term.

Treat Me's Mr MacAvoy said New Zealand's population could sustain only a couple of big players.