Turns out the burgeoning but increasingly complex world of daily deals requires outsized margins that have afforded founder companies Groupon and LivingSocial their success.
Robust local sales efforts are de rigueur to generate enough deal “inventory” to make the consumer proposition viable in a U.S. market worth at minimum $3 billion, according to Opus Research projections — and Facebook, for one, isn't ready to make that kind of commitment.
The social network is checking out of the daily deals business it launched in April in Atlanta, Austin, Dallas, San Diego and San Francisco. "After testing Deals for four months, we've decided to end our Deals product in the coming weeks. We think there is a lot of power in a social approach to driving people into local businesses. We've learned a lot from our test and we'll continue to evaluate how to best serve local businesses," said a Facebook statement.
Even though its Deals launch gave an initial kick to competitors Groupon and LivingSocial, no further explanation has been given for the pull-out. Still, the social networking giant reportedly “remains committed to serving local businesses through ads, pages and other products,” and will continue offering "check-in deals" - discounts that pop up when users share their location with the site, but buy-in-advance deals, imitative of Groupon are being scrapped.
Reviews-driven site Yelp also trimmed its Deals staff by 50% this week after launch one year ago in San Diego and subsequent national expansion.
"This shows that just having a big name and a big audience isn't enough to make daily deals work," comments Jim Moran, co-founder of Yipit, deal aggregator and tracker, to Fortune. "Clearly, people are interested in deals, and the market is growing. It comes down to offering deals in a certain context -- and if that's not right, a service can fail quickly."
Yipit tracks more than 360 active daily deals sites in the U.S.; July had 36 launches and 38 shut-downs, the first time closures surpassed launches, but not a sign that daily deals are becoming passé says Moran.
"I do think there's a space for Yelp and Facebook to benefit, but they need to figure some things out," Moran says. "And other big companies, like Google and Amazon, seem to be very well positioned."
Google, meanwhile, is just getting started, with Offers and Latitude check-in deals launched in several cities, its +1 button promoted to retailers and the recent acquisition of Dealmap extending the search engine brand's reach in aggregating and displaying local deals.
A recent promotion on Google’s homepage for discount admission to New York’s Museum of National History, although seen mostly by New Yorkers, underscores the marketing muscle being put behind its Offers product, which will roll out across America this fall.
Inherent in its DNA, Google’s Offers vision includes Offer Ads and deal tie-ins and discounts to Google Wallet as well as check-ins at physical stores.
David Strebinger, CEO of “deal exchange” Wantsa, “sees deals essentially as incentives for consumers to take various sorts of actions and as ad inventory that can appear in search, mobile, display and on directory sites. In other words, deals is an all-purpose local advertising product that can be distributed in myriad ways.”
Google will be well poised to seize this new local ad territory.
In the battle for local deals, Groupon itself is not yet profitable, but continues growing with a current subscriber base of 116 million, up from 83 million last quarter.
Facebook’s withdrawal reinforces the fact that social media acumen does not equate to a robust daily deals business and that this manifest destiny remains to be discovered.