Why clicking to save adds up to a big deal

The online daily deal market is expanding at a furious rate and is already maturing, writes MARIE BORAN

COUPONS ARE nothing new. We’ve been clipping them out of newspapers and getting them through our letterbox for decades. Internet coupons aren’t exactly a novel invention either; we’re all familiar with typing in discount or promo codes at the virtual checkout.

So how are a new breed of daily-deal sites such as Groupon and LivingSocial growing so fast and making so much money in the process? Groupon (known as CityDeal in Ireland) pulled in an estimated $760 million in revenue in 2010, while LivingSocial is expecting in the region of $500 million for 2011 and is hiring 150 new people a week globally. Groupon was even reportedly the subject of a $6 billion takeover bid from Google.

The market is expanding at a furious rate with new additions such as Tippr, DealOn, CoupMe and Eversave arriving by the month. There’s even a site called YipIt that aggregates the deals from all of these services by city but for now they mostly operate within the US.

Ireland has a daily deal site aimed at the younger male demographic with lots of disposable cash in the form of Gruupy.com, while Dublin start-up GeoDealio works with local businesses to provide mobile location-based discounts.

The daily deal business model mainly works by providing deals from smaller, local businesses but the market is already maturing. While Groupon turned down the Google acquisition offer, LivingSocial is gaining ground since an exclusive deal that has seen it sell over one million Amazon.com vouchers to date.

Clearly there is money to be made by hooking up the buying public with daily bargains for both big brands and local producers. Peter Briffett, LivingSocial’s managing director for Ireland and the UK, explains that with subscribers buying from the site and merchants being sent new customers, they take a cut of the deal price and the rest is passed on to the business 10 days after the deal runs in full.

The reason people are flocking to these sites is not just because a discount is a hard thing to pass on – it’s because of the ubiquity of social networking. These daily-deal sites rely on subscribers sharing via Facebook, Twitter and e-mail and even work on the premise of group discounts to spread it further.

“The coupon business has been around for a while,” says Briffett. “We’re not saying we invented that idea but we have a business model that in this day and age works so well because of the ability of viral ideas to spread so quickly. The amount of people socialising online constantly is the driver behind this.”

Stefan Glaenzer, venture capitalist and investor in Rebate Network, which is a market leader in southeast Asia, tends to think that the online daily deal space is not just big but the “first digital marketing innovation ever” by virtue of its ability to link online customers to real-world businesses. His opinion is that this space is growing as fast as the dotcom boom of the 1990s but instead of being measured in page views there is a solid revenue model.

Rebate Network also has a minority stake in Chinese market leader Lashou.com, which Glaenzer reports is growing at an astonishing rate of “40 to 50 per cent per month with no signs of stopping. This space is huge.”

LivingSocial is making sure to innovate to stay ahead of the crowd. It has just launched the beta version of its Instant Deals mobile app. The idea is that the deal is hyper-local, limited in time and offers a hefty discount.

Smaller players such as GeoDealio use Twitter integration to make it as easy as possible for the merchant to advertise.

“Customers who have already signed up with us don’t need to log in or do anything to send out a new deal. All they need to do is include the hashtag #dealio in whatever offer they tweet out and it’s automatically included on our system,” says GeoDealio co-founder Paul O’Grady.

Some fear daily deal sites have merely reaped rewards sown by consumer reluctance to spend in the wake of a global recession.

“People certainly do put more weight behind better value but I think whether there’s a recession or not these things work. Everyone wants a bargain and wants to be excited by new experiences,” Briffett says, referring to the fact that the most successful deals tend to be for services such as teeth whitening, spa treatments or flying lessons – all of those things consumers label “luxury buys” and are reluctant to purchase outright.

It will continue to work if “[we] aim to hyper-localise and be the future of local commerce”, says Briffett.